<PAGE>
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-K
---------------
<TABLE>
<S> <C> <C>
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
[FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM ---------- TO ----------
</TABLE>
COMMISSION FILE NUMBER: 1-9988
REXENE CORPORATION
(Exact name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 75-2104131
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5005 LBJ FREEWAY
DALLAS, TEXAS 75244
(Address of principal executive offices) (Zip Code)
</TABLE>
(214) 450-9000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------------------------------------- -------------------------------------------------
<S> <C>
Common Stock, $0.01 par value New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
11 3/4% Senior Notes due 2004 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS
None
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the 18,685,777 shares of common stock held by
non-affiliates of the Registrant was $205,543,547 as of March 5, 1996.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes __X__ No ______
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
NUMBER OF SHARES OUTSTANDING
TITLE OF EACH CLASS AT MARCH 5, 1996
- ------------------------------------------------- -------------------------------------------------
<S> <C>
Common Stock, $0.01 par value 18,766,118
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the Registrant's
definitive proxy statement to be filed for its annual meeting of stockholders
scheduled to be held on April 30, 1996.
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<PAGE>
REXENE CORPORATION
1995 ANNUAL REPORT ON FORM 10-K
PART I
ITEM 1. BUSINESS
INTRODUCTION
The Company is the result of a combination of three businesses operated by
predecessor entities. In 1958, a subsidiary of The El Paso Company ("El Paso")
constructed a styrene plant in Odessa, Texas. In 1960, El Paso and a predecessor
of Dart Industries Inc. ("Dart") formed a joint venture to produce ethylene,
propylene, polyethylene and polypropylene in Odessa, Texas. El Paso subsequently
acquired the plastic film business of Dart in 1979 and full ownership of these
businesses by 1983. In 1983, El Paso sold its petrochemical, polyolefin and
plastic film business to a management-led group of investors, who consolidated
the businesses under a Delaware corporation named Rexene Corporation ("Old
Rexene"). In 1988, Old Rexene was sold to an investor group organized by an
investment banking firm.
In October 1991, Old Rexene filed a petition for reorganization under the
federal bankruptcy laws. On September 18, 1992, Old Rexene emerged from
bankruptcy in accordance with a plan of reorganization (the "1992
Reorganization") providing for the merger of Old Rexene into its wholly-owned
operating subsidiary, Rexene Products Company ("Products"), a Delaware
corporation, which subsequently changed its name to Rexene Corporation. Unless
otherwise indicated, Old Rexene, Products and Rexene Corporation and their
consolidated subsidiaries are sometimes collectively or separately referred to
as "Rexene" or the "Company".
In the fourth quarter of 1994, the Company completed a recapitalization plan
(the "Recapitalization") designed to increase stockholders' equity, reduce
indebtedness and interest expense and improve the Company's strategic, operating
and financial flexibility. The Recapitalization resulted in (i) the issuance of
8 million shares of common stock at $11.00 per share, (ii) the issuance of
11 3/4% Senior Notes due 2004 (the "11 3/4% Senior Notes") in an aggregate
principal amount of $175 million, (iii) the establishment of a new credit
facility (the "Credit Agreement"), providing a $100 million term loan (the "Term
Loan") and an $80 million revolving line of credit (the "Revolving Credit
Facility"), (iv) the redemption and defeasance of the Company's increasing rate
first priority and second priority notes (the "Old Notes"), and (v) the
repayment in full of the outstanding indebtedness under the then existing credit
agreement (the "Old Credit Agreement"). No borrowings have been made under the
Revolving Credit Facility. In the first six months of 1995, the Company prepaid
all of the Term Loan.
On March 15, 1996, the Board of Directors approved a financing plan (the
"Financing"), and the Company executed a commitment letter with a bank to
replace the existing Revolving Credit Facility. The Financing would provide a
new credit facility (the "New Credit Facility") in an initial principal amount
of $150 million. The primary use of proceeds from the New Credit Facility will
be to provide funds to finance portions of the Company's capital expenditure
program at its Odessa, Texas plant over the next three years, including the
construction of the flexible polyolefin polymer ("FPO") plant, the modernization
and expansion of its olefins plant and the construction of a new linear low
density polyethylene ("LLDPE") plant. The Financing is contingent on a number of
factors, including the negotiation of the New Credit Facility. The Company
anticipates consummation of the Financing during the second quarter of 1996.
The corporate headquarters of the Company are located at 5005 LBJ Freeway,
Dallas, Texas 75244, and its telephone number is 214-450-9000.
PRINCIPAL PRODUCTS
The Company manufactures and markets a wide variety of products through its
two operating divisions, Rexene Products Company division ("Rexene Products")
and Consolidated Thermoplastics
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Company division ("CT Film"). The products range from value added specialty
products, such as customized plastic films, to commodity petrochemicals, such as
styrene. These products are used in a wide variety of industrial and
consumer-related applications. The Company's principal products are plastic
film, polyethylene, polypropylene, and REXTAC-Registered Trademark- amorphous
polyalphaolefin ("APAO") resins and styrene. In addition, the Company
manufactures, primarily for its own consumption, ethylene and propylene, the two
basic chemical building blocks of the Company's principal products. The Company
manufactures plastic film at five plants located in the United States and
England and polymers and petrochemicals at an integrated facility in Odessa,
Texas (the "Odessa Facility") which is located near supplies of most of its raw
materials.
Plastic film, polyethylene, polypropylene, APAO and styrene are used by the
Company's customers to manufacture many diverse finished goods. These principal
end market products are set forth below:
[CHART]
2
<PAGE>
The following chart presents the net sales, excluding intercompany sales,
contributed by the Company's products for the years ended December 31 (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Plastic film..................................................... $ 170,525 $ 172,618 $ 147,468
Polyethylene..................................................... 167,873 145,362 120,060
Polypropylene.................................................... 90,568 77,544 64,459
APAO............................................................. 24,217 18,571 15,084
Styrene.......................................................... 120,084 89,818 61,372
Other............................................................ 41,971 34,044 20,910
----------- ----------- -----------
$ 615,238 $ 537,957 $ 429,353
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
No customer accounted for more than 10% of the Company's net sales for the
years ended December 31, 1995, 1994 and 1993.
PLASTIC FILM
THE PRODUCT
The Company, through CT Film, is a major participant in specialty markets
for plastic films. Product applications for these films include disposable
diapers, feminine hygiene products, tapes, packaging, lamination and unsupported
overwraps and greenhouse and agricultural applications. CT Film's products are
manufactured principally with its own proprietary processes.
CT Film develops specialty formulations of films to meet customer
specifications for various highly specific and value added applications.
Examples include low gel films developed for photo-resistant applications,
MAXILENE-Registered Trademark- lamination films and thin gauge barrier films for
feminine hygiene products and medical applications. CT Film produces films for
co-extruded forming webs, composite laminations, linear tear films and
elastomeric films for surgical products.
A general trend by disposable diaper manufacturers towards thinner diaper
backsheet materials reduced the volume of film products sold into this market in
1995. Since the disposable diaper market is the largest customer segment in the
film division, this trend significantly affected its sales volumes and operating
results in 1995. However, CT Film is developing a number of strategies intended
to increase its sales and profits, including developing a new generation of film
products for the disposable diaper market, broadening production capabilities,
globalizing sales and marketing efforts and developing new film products for the
medical and packaging markets.
MARKETING
Domestically, CT Film ships film from its plants in Chippewa Falls,
Wisconsin; Clearfield, Utah; Dalton, Georgia; and Harrington, Delaware.
Internationally, plastic film is shipped through CT Film's European subsidiary,
Rexene Corporation Limited, located in Scunthorpe, England. The Company's
customers include a number of Fortune 500 companies. Products are sold primarily
through the Company's plastic film sales and marketing staff.
COMPETITION
The United States film industry is highly fragmented, with over 450
producers ranging from a few large national producers, such as CT Film, to many
small, regional producers. CT Film's principal competitors include Tredegar
Industries, Exxon Chemical Company, Clopay Corporation, Blessings Company,
Deerfield Plastics Company, Inc., DuPont of Canada and James River Corporation.
The plastic film business is based on custom formulations to meet customer
needs. Competition is based on the quality and properties of the film as well as
price. CT Film seeks to develop innovative products to meet customer needs and
seeks to compete by segmenting market niches and being responsive to customers'
specific requirements.
3
<PAGE>
POLYETHYLENE
THE PRODUCT
Polyethylene represents by volume the most widely produced thermoplastic
resin in the world. The majority of polyethylene produced in the United States
is low density polyethylene ("LDPE") resin. In 1995, approximately 56% of LDPE
capacity in the United States was used to make high pressure low density
polyethylene ("HPLDPE") resin and the balance to make LLDPE. The Company
currently only participates in the HPLDPE market, but intends to participate in
the LLDPE market commencing in the fourth quarter of 1998 with the completion of
construction of the LLDPE plant at the Odessa Facility.
The Company produces a variety of grades of HPLDPE. Many of these resins are
designed to meet specific customer requirements, such as for medical and
electronics applications. Examples of the Company's differentiated polyethylene
are ethylene-vinyl acetate resins used in film applications that require high
clarity, toughness and sealability, and specialty low-gel resins used in
computer circuit board production. The Company focuses on providing polymer
solutions to specific customer needs.
MARKETING
The Company participates in every principal market for HPLDPE resin, selling
its HPLDPE resins under the REXENE-Registered Trademark- trademark. Prime grade
products are sold domestically and in Canada directly to customers primarily
through the Company's sales staff. Most wide specification products are sold to
dealers for resale. Export sales, other than to Canada, are made directly and
through trading companies and agents.
COMPETITION
There are currently 14 domestic producers of LDPE resins, some of which
produce both HPLDPE and LLDPE. In 1995, these producers had an estimated
combined, rated annual production capacity of approximately 14.6 billion pounds.
The largest manufacturer of LDPE is Quantum Chemical Corporation. The other five
largest domestic producers of LDPE are Dow Chemical Company, Union Carbide
Corporation, Chevron Chemical Company, Exxon Chemical Company and Mobil Chemical
Company. In 1995, Rexene accounted for approximately 3% of the United States
capacity for LDPE and approximately 5% of the United States capacity for HPLDPE.
Competition for sales is generally based on price for less specialized products
and on product performance, customer service and, to a lesser extent, price for
more specialized products. The Company competes in the polyethylene market by
providing a high level of technical support and customer service and developing
resins which are responsive to customers' specific requirements.
POLYPROPYLENE
THE PRODUCT
The Company currently produces a wide variety of grades of polypropylene
resins. These include several types of random and impact copolymers with
properties specifically tailored for specialty markets. The Company emphasizes
the manufacturing of polypropylene resins for specialty segments of the
polypropylene market such as medical, electrical and automotive applications.
The Company is one of only two domestic producers of a super clean grade of
polypropylene utilized for medical applications and electrical capacitor film.
The Company's line of impact copolymer polypropylene products is used primarily
for automotive components and rigid packaging. Other products include radiation
resistant resins and high quality blow-molding resins. The Company has been
active in making process technology improvements and works closely with
customers in developing new products to meet their specific needs.
MARKETING
The Company sells its polypropylene products under the REXENE-Registered
Trademark- trademark. Domestic and Canadian sales of products are sold primarily
through the Company's sales staff. Most wide-specification products are sold to
brokers for resale. Export sales, other than to Canada, are made directly and
through trading companies.
4
<PAGE>
COMPETITION
In 1995, there were 14 domestic producers of polypropylene in the United
States. The industry's estimated combined, rated annual production capacity was
approximately 10.8 billion pounds in 1995. The four largest domestic producers
of polypropylene were Montell U.S.A., Inc., Amoco Chemicals Corporation, Fina,
Inc. and Exxon Chemical Company. Competition for sales is dependent upon a
variety of factors, including product price, technical support and customer
service, and the degree of specialization of various grades of polypropylene.
General purpose polypropylene ordinarily competes principally on the basis of
price, while more differentiated polypropylene competes principally on the basis
of product quality, performance specifications and, to a lesser extent, price.
In 1995, Rexene accounted for approximately 2% of United States production
capacity for polypropylene. The Company competes in the polypropylene market by
providing a high level of technical support and customer service focused on
niche markets with specialty products.
APAO
THE PRODUCT
The Company is one of only two United States on-purpose producers of APAO.
APAO is a special purpose, high quality polymer used primarily in the production
of modified bitumen roofing materials, lamination, wire and cable, adhesives and
sealants. These applications include hot melt adhesives for nonwovens,
packaging, pressure sensitive and assembly applications and as a modifier of
other polymers.
MARKETING
The Company sells APAO under the REXTAC-Registered Trademark- trademark.
APAO is sold domestically through the Company's sales staff. The Company has
from time to time supplemented its sales of APAO with purchases from Ube Rexene
Corporation, a joint venture company located in Japan in which the Company holds
a 50% equity interest.
COMPETITION
The Company and Eastman Chemical Company are currently the only domestic
on-purpose producers of APAO. In addition, a few producers of polypropylene also
produce atactic polypropylene ("APP"), which competes with APAO for some less
performance driven uses. Based on management estimates, in 1995 Rexene accounted
for approximately 30% of the United States capacity for APAO and APP. The
Company competes by providing a high level of customer service and developing
products which are responsive to customers' specific requirements.
STYRENE
THE PRODUCT
Styrene is a petrochemical intermediate commodity made from ethylene and
benzene and used principally in the production of polystyrene,
acrylonitrile-butadiene-styrene resins, styrene-butadiene latex, and rubbers and
unsaturated polyester resins. Through these products, styrene can be found in
consumer products, including disposable cups and trays, consumer electronics,
automotive trim, tires and building materials such as carpeting and insulation.
MARKETING
The Company sells its styrene directly, using a specialized petrochemical
sales team. In 1995, the Company entered into several long-term styrene
contracts which it believes will reduce its exposure to future price volatility.
Export sales, on a contractual and spot basis, are handled directly and through
international trading companies.
COMPETITION
In 1995, there were 10 domestic producers of styrene with an estimated
combined, rated annual production capacity of approximately 11.9 billion pounds.
More than 50% of this capacity is consumed internally by the styrene producers
for the production of derivatives such as polystyrene. In 1995, the
5
<PAGE>
six largest domestic producers of styrene were Arco Chemical Company, Huntsman
Chemicals Corporation, Amoco Chemicals Corporation, Sterling Chemicals, Inc.,
Dow Chemical Company and Chevron Chemical Company. Rexene accounted for
approximately 3% of domestic production capacity for styrene, with a 5% market
share for non-integrated consumers. Competition for sales is generally based on
price.
EXPORT SALES
The following chart summarizes revenues from export sales, and the
percentages of net sales represented by export sales, for the indicated years
ended December 31 (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Export sales......................................................... $ 77,508 $ 52,382 $ 31,617
Percentage of net sales.............................................. 13% 10% 7%
</TABLE>
Export sales increased from 1994 to 1995 principally due to increases in
average sales prices and volumes for styrene and polymer products. The majority
of the Company's export sales were to foreign companies through agents and
international trading companies.
NEW PRODUCT DEVELOPMENT
The Company continually seeks to enhance and expand its portfolio of
specialty polymers through sustained in-house research and development and
licensing arrangements. For example, the Company has developed FPO, a
propylene-based product, which the Company believes has the potential for use in
a wide variety of markets including automotive, personal care products,
industrial and medical devices. In 1995, the Company began construction of a FPO
plant at its Odessa Facility, which is scheduled for completion in the fourth
quarter of 1996. Commercial production of FPO is subject to the successful
implementation of the technology, the completion of a commercial plant and
necessary governmental approvals.
In addition, in late 1995 the Company licensed LLDPE and high density
polyethylene technology from Stamicarbon, a licensing subsidiary of DSM. When
planned production commences in the fourth quarter of 1998, Rexene's LLDPE plant
in Odessa, Texas will be the first North American production facility to make
LLDPE using the DSM "Compact" process. This process refers to the plant's small
physical size, which is well suited to efficiently produce high quality products
in small lot sizes. The octene copolymers produced by this process are
consistent with the Company's strategy of producing higher quality, value-added
products.
The Company has spent between $6.6 million and $9.5 million per year for
research and development during each of the last three fiscal years and
anticipates spending approximately $9.0 million for research and development in
1996.
RAW MATERIALS FOR PRINCIPAL PRODUCTS
Principal raw materials purchased by the Company consist of ethane and
propane extracted from natural gas liquids, propylene and benzene (all four of
which are referred to as "feedstocks") for the polymer and styrene businesses
and polyethylene resins for the film business. The prices of feedstocks
fluctuate widely based upon the prices of natural gas and oil. During 1995,
feedstocks accounted for approximately 27% of the Company's total cost of sales.
As a result, the Company's ability to pass on increases in raw material costs to
customers has a significant impact on operating results.
The Odessa Facility obtains a combination of pure and mixed streams of
natural gas liquids ("NGL") from NGL pipelines and NGL extraction plants located
in west Texas and uses such streams to obtain ethane and propane feedstocks for
the Company's olefins plant. In 1995, the Odessa Facility consumed approximately
530 million and 511 million pounds of ethane and propane, respectively, and in
1994, the Odessa Facility consumed ethane and propane of approximately 558
million and 485 million pounds, respectively. In 1995, the Company produced all
of its ethylene and 50% of its propylene
6
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requirements for the Odessa Facility. The feedstock supplies available in Odessa
are currently adequate for the Company's requirements. The Company has storage
capacity for an approximately fifteen-day supply of feedstocks.
The Odessa Facility uses benzene and ethylene to produce styrene. In 1995,
virtually all of the Company's benzene purchases were under contracts from Gulf
Coast and Midwest producers at prevailing contract prices, with the balance of
its needs being filled with purchases on the spot market.
The principal feedstocks for the Company's captive ethylene and propylene
production of the Odessa Facility are ethane and propane. Ethane and propane
prices are established in Mont Belvieu, Texas (Gulf Coast) according to
prevailing market conditions, but the Company is able to purchase NGL containing
ethane and propane in west Texas at prices discounted from the prevailing
reported average Mont Belvieu, Texas prices. These discounts reflect a
significant portion of the cost for the producers to transport NGL containing
ethane and propane to Mont Belvieu, Texas and to fractionate them into pure
ethane and propane. In 1995, the Company acquired all of the Odessa Facility's
requirements for ethane and propane under such arrangements.
CT Film raw materials consist principally of polyethylene resins and
additives. CT Film obtains its raw materials from a variety of sources
(including the Odessa Facility) and has been able to order these materials in
advance as its needs dictate. CT Film has adequate storage capabilities for its
raw materials.
EMPLOYEES
On February 1, 1996, the Company employed approximately 1,275 persons,
approximately 115 of whom are unionized, at the CT Film facility in Chippewa
Falls, Wisconsin. The Company and the union are parties to a collective
bargaining agreement through February 28, 1997.
TRADEMARKS AND PATENTS
The Company is the owner of many United States and foreign patents and uses
trade secrets, including substantial know-how, which relate to its polyethylene,
polypropylene, APAO and plastic film products. Although patents and trade
secrets are important to the Company, permitting it to retain ownership and use
of its technological advances, the Company does not believe that the loss of any
patent would have a material adverse effect on its financial condition. The
Company also uses the technology of others under license agreements in certain
of its manufacturing operations.
REXENE-Registered Trademark- and REXTAC-Registered Trademark- are important
trademarks for the Company's resins and are widely known among purchasers of
these products. The Company is the owner of other trademarks used on or in
connection with its products.
The Company has been sued by Phillips Petroleum Company for alleged
infringement of its crystalline and block co-polymer polypropylene patents. See
"Item 3 -- Legal Proceedings".
ENVIRONMENTAL AND RELATED REGULATION
GENERAL
The Company, and the industry in which it competes, is subject to extensive
environmental laws and regulations and is also subject to other federal, state
and local laws and regulations regarding health and safety matters. The Company
believes that its business, operations and facilities generally have been and
are being operated in compliance in all material respects with applicable
environmental and health and safety laws and regulations, many of which provide
for substantial fines, criminal sanctions, and in certain extreme circumstances,
temporary or permanent plant closures for violations. Nevertheless, from time to
time, the Company has received notices of alleged violations of certain
environmental laws and has endeavored to remedy such alleged violations
promptly. The ongoing operations of chemical manufacturing plants entail risks
in these areas and there can be no assurance that material costs or liabilities
will not be incurred in the future.
7
<PAGE>
In addition, future developments, such as increasingly strict requirements
of environmental and health and safety laws and regulations and enforcement
policies thereunder could bring into question the handling, manufacture,
storage, use, emission or disposal of substances or pollutants at the Company's
facilities. Changes to or reinterpretations of existing laws could materially
and adversely affect the Company's business and results of operations.
The Company's operating expenditures for environmental remediation,
compliance and waste disposal were approximately $8.3 million and $6.6 million
in 1995 and 1994, respectively. In 1995 and 1994, the Company also expended
approximately $1.2 million and $2.0 million, respectively, relating to
environmental capital expenditures. In 1996, the Company anticipates spending
approximately $7 million for environmental remediation, compliance and waste
disposal. Of that amount, expenditures relating to remediation are projected to
be approximately $2 million in 1996. For the foreseeable future, the Company
expects to incur approximately $2 million to $4 million per year in capital
spending to address the requirements of environmental laws. Annual amounts could
vary depending on a variety of factors, such as the control measures or remedial
technologies ultimately required and the time allowed to meet such requirements.
The Company believes that, in light of its historical expenditures and
expected future results of operations, it will have adequate resources to
conduct its operations in compliance with currently applicable environmental and
health and safety laws and regulations. However, in order to comply with
changing facility permitting and regulatory standards, the Company may be
required to make additional significant site or operational modifications that
are not currently contemplated. Further, the Company has incurred and may in the
future incur liability to investigate and clean up waste or contamination at its
current or former facilities, or which it may have disposed of at facilities
operated by third parties. The Company has approximately $20.3 million accrued
in the December 31, 1995 balance sheet as a preliminary estimate of its total
potential environmental liability with respect to investigating and remediating
known and assessed site contamination. The Company continually reviews its
estimates of potential environmental liabilities. However, no assurance can be
given that all potential liabilities arising out of the Company's present or
past operations have been identified or fully assessed or that the amounts that
might be required to investigate and remediate such conditions will not be
significant to the Company.
The Company does not currently carry environmental impairment liability
insurance to protect it against such contingencies because the Company has found
such coverage available only at great cost and with broad exclusions. As part of
its financial assurance requirements under the Resource Conservation and
Recovery Act ("RCRA") and equivalent Texas law, the Company has deposited
approximately $3.5 million in trust to cover closure and post-closure costs and
plugging and abandonment costs at certain of the Odessa Facility's hazardous
waste management units. Based on the Company's improved financial condition,
management believes it will be able to meet the regulatory requirements to have
the Texas Natural Resource Conservation Commission ("TNRCC") release the funds
in the trust during 1996.
WASTEWATER
The Company currently disposes of wastewater from the Odessa Facility
through injection wells operated under permits from TNRCC. TNRCC has stated that
it does not intend to renew the permits after they expire in December 1997.
Further, TNRCC may order the Company to cease using one or more of the wells if
certain periodic testing results indicate that continued injection cannot be
conducted safely. For contingency planning purposes, the Company also has a
permit from TNRCC to drill and operate a deeper well to provide for wastewater
disposal. Company consultants have estimated this cost of installing a new deep
well injection system at approximately $6 million. The Company has entered into
an agreement with the City of Odessa and a quasi-governmental authority pursuant
to which the latter will acquire, modify and operate a publicly-owned treatment
works ("POTW") to dispose of the Company's and a portion of the City's
wastewater. The parties have completed their technical review of the project,
and detailed engineering work is in progress with a
8
<PAGE>
view to having the POTW operational by mid-1997. If the Company is forced to
cease using its injection wells before the POTW plant is operational, there
could be a material adverse effect on the Company's financial position, results
of operations or cash flows.
SOLID WASTES
In March 1994, TNRCC granted the Company a permit to operate three hazardous
waste management units at the Odessa Facility as treatment/storage/disposal
facilities under RCRA. This permit is accompanied by a compliance plan requiring
the Company to take corrective action with regard to existing contamination at
the Odessa Facility. Pursuant to this compliance plan, the Company has installed
a groundwater recovery system and must complete an investigation into the extent
of on-site contamination, conduct a soils risk assessment to determine the level
of risk it presents to human health and the environment, develop a corrective
measures study on the ways to remediate the contamination, and implement a
remediation plan approved by TNRCC. Low levels of contaminants were discovered
in an intermittently flowing stream which traverses the western-most portion of
the Odessa Facility. Based upon subsequent sampling and analysis of the
components in the stream, no remediation of the property is being required at
this time.
Based upon the results of its continuing investigations of on-site
contamination, the Company believes that implementation of any corrective action
plan will not have a material adverse effect on its financial condition.
However, no assurance can be given that all conditions that may require
corrective action have been identified, or that the amounts that might be
required to implement that plan will not be significant to the Company.
AIR EMISSIONS
In 1990, Congress amended the federal Clean Air Act to require control of
certain emissions not previously regulated, some of which are emitted by the
Company's facilities. This legislation will require the Company (and others in
the industry with such emissions) to implement additional pollution control
measures. Some of the regulations detailing these additional control measures
have not yet been promulgated. The Company expects that modifications required
by the currently published regulations can be accomplished within the projected
capital budget, but it can give no assurance that the costs it may incur to
comply with regulations that have not yet been issued will not be significant.
The Company operates its styrene plant under an air permit that was first
issued in 1979. The permit has been amended several times, most recently in
1995, and it currently covers both the styrene plant and the styrene loading
facilities.
ADDITIONAL ENVIRONMENTAL ISSUES
The federal Comprehensive Environmental Response Compensation and Liability
Act, as amended, and similar laws in many states, impose liability for the
clean-up of certain waste sites and for related natural resource damages,
without regard to fault or the legality of the waste disposal. Liable persons
generally include the site owner or operator, former site owners and persons
that disposed or arranged for the disposal of hazardous substances found at
those sites. The Company has sent wastes from its operations to various
third-party waste disposal sites. From time to time the Company receives notices
from representatives of governmental agencies and private parties contending
that the Company is potentially liable for a portion of the investigation and
remediation at such third-party and currently and formerly-owned sites. Although
there can be no assurance, the Company does not believe that its liabilities for
the investigation and remediation of such sites, either individually or in the
aggregate, will have a material adverse effect on the Company.
9
<PAGE>
EXECUTIVE OFFICERS
The table set forth below provides certain information with respect to those
persons who are currently serving as executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- --- --------------------------------------------------------------------
<S> <C> <C>
Andrew J. Smith 54 Director and Chief Executive Officer
Lavon N. Anderson 60 Director, President and Chief Operating Officer
Kevin W. McAleer 45 Executive Vice President and Chief Financial Officer
Jack E. Knott 41 Executive Vice President and President -- Rexene Products
Jonathan R. Wheeler 44 Executive Vice President and President -- CT Film
James M. Ruberto 49 Executive Vice President -- Administration
Bernard J. McNamee 60 Executive Vice President, Secretary and General Counsel
Geff Perera 42 Vice President and Controller
</TABLE>
Mr. Smith has been Chief Executive Officer and a director of the Company
since March 1992. From December 1991 to March 1992, he was a private consultant.
From June 1991 to December 1991, he was President and Chief Operating Officer of
Itex Enterprises, Inc., an environmental remediation company. Mr. Smith also
served as a consultant to the Company from January 1991 to June 1991.
Immediately prior thereto, he had been a director of the Company since May 1988
and the President and Chief Executive Officer of the Company since June 1988.
Dr. Anderson has been President and Chief Operating Officer of the Company
since January 1991 and a director since February 1990. From May 1988 to January
1991 Dr. Anderson was Executive Vice President -- Manufacturing and Technical of
the Company.
Mr. McAleer has been Executive Vice President and Chief Financial Officer of
the Company since July 1990.
Mr. Knott has been Executive Vice President of the Company and President of
Rexene Products since March 1995. Prior thereto, Mr. Knott had been Executive
Vice President -- Sales and Market Development of the Company since March 1992.
Prior thereto, Mr. Knott was an Executive Vice President of the Company since
January 1991 and President of CT Film since February 1989.
Mr. Wheeler has been Executive Vice President of the Company and President
of CT Film since January 1996. Prior thereto, Mr. Wheeler was Executive Vice
President -- Administration since April 1995. Prior thereto, Mr. Wheeler had
been Senior Vice President -- Administration of the Company since December 1990.
Mr. Ruberto has been Executive Vice President -- Administration since
January 1996. Prior thereto, Mr. Ruberto had been Executive Vice President of
the Company and President of CT Film since March 1992. Prior thereto, Mr.
Ruberto had been Executive Vice President -- Sales and Market Development of the
Company since January 1991. From April 1989 to January 1991, Mr. Ruberto was
Executive Vice President -- Marketing and Business Planning of Rexene Products.
Mr. McNamee has been Executive Vice President, Secretary and General Counsel
of the Company since April 1995. Prior thereto, Mr. McNamee had been Vice
President, Secretary and General Counsel of the Company since May 1993. From
September 1989 to November 1992, Mr. McNamee was Vice President and General
Counsel of Ferro Corporation, a multinational manufacturer of specialty
materials.
Mr. Perera has been Vice President of the Company since January 1991 and
Controller since February 1989.
10
<PAGE>
ITEM 2. PROPERTIES
The Company operates manufacturing facilities at six locations, five of
which are in the United States and one in England.
CT Film has four domestic manufacturing facilities located in Delaware,
Georgia, Utah and Wisconsin, with a total rated annual production capacity of
approximately 225 million pounds. From January 1, 1993 through December 31,
1995, these plants, which produce blown and cast plastic film, operated at an
average weighted average utilization rate of approximately 79%. See "Item 7 --
Management's Discussion and Analysis of Financial Condition and Results of
Operations". The fifth CT Film manufacturing facility, located in England,
commenced commercial production in September 1994 and currently has a total
rated annual production capacity of 30 million pounds. These five CT Film
plants, which commenced operations between 1948 and 1994, are in good operating
condition.
The polyethylene plant in Odessa, Texas has been in operation since 1961 and
has a total rated annual production capacity of approximately 420 million
pounds.
The polypropylene plant in Odessa, Texas has been in operation since 1964
and has a total rated annual production capacity of approximately 180 million
pounds. APAO is produced in a former polypropylene plant that was converted in
1986 and has a total rated annual production capacity of approximately 60
million pounds.
The styrene plant in Odessa, Texas has been in operation since 1958 and has
a total rated annual production capacity of approximately 320 million pounds.
The olefins plant in Odessa, Texas has been in operation since 1961 and has
a total rated annual production capacity for ethylene of approximately 540
million pounds and for propylene of approximately 210 million pounds.
From January 1, 1993 through December 31, 1995, each of the plants in
Odessa, Texas operated at rates in excess of 94% of their total rated annual
production capacity, except for the APAO plant, which operated in excess of 88%
of total rated annual production capacity. Although several of these plants
first began production more than thirty years ago, the Company believes these
plants are in good operating condition.
The Company owns all of its manufacturing facilities, except for the CT Film
plant in Utah, which is held under a long-term lease. All of the United States
film plants are subject to encumbrances which secure borrowings under the Credit
Agreement. The styrene plant in Odessa, Texas is also subject to encumbrances
which secure the obligation to repay an advance payment from a styrene customer.
See Notes 9 and 10 to the Consolidated Financial Statements in Item 8 for
further discussion.
The Company also owns off-site warehouses in Odessa, Texas, leases off-site
warehouses near its manufacturing facilities in Delaware and Wisconsin, and
leases its executive offices in Dallas, Texas.
ITEM 3. LEGAL PROCEEDINGS
PHILLIPS BLOCK COPOLYMER LITIGATION
In March 1984, Phillips Petroleum Company ("Phillips") filed a lawsuit
against the Company in the United States District Court for the Northern
District of Illinois, Eastern Division, seeking injunctive relief, an
unspecified amount of compensatory damages and treble damages. The complaint
alleged that the Company's copolymer process for polypropylene infringed
Phillips' two "block" copolymer patents, the last of which expired in 1994. This
action has been transferred to the United States District Court for the Southern
District of Texas, Houston Division. Discovery proceedings in this case have
been completed. The Company has filed a motion for summary judgment. Phillips
has filed a motion for partial summary judgment. Pursuant to an agreement among
the parties, the court appointed a special master who conducted a hearing on
these motions and thereafter recommended to the court that the Company's motion
be granted and Phillips' motion be denied. Thereafter, Phillips filed motions to
disqualify the special master, to reject the recommendation of the special
master and
11
<PAGE>
to enter partial summary judgment for Phillips. The court has entered an order
denying Phillips' motion to disqualify the special master. The summary judgment
motions are still pending. In the Company's bankruptcy proceeding in 1992,
Phillips filed a proof of claim seeking in excess of $108 million based upon the
allegations in this litigation. The Company objected to the claim and elected to
leave the legal, equitable and contractual rights of Phillips unaltered, thereby
allowing this litigation to proceed without regard to the bankruptcy proceeding.
PHILLIPS CRYSTALLINE LICENSE LITIGATION
In May 1990, Phillips filed a lawsuit against the Company in the United
States District Court for the District of Delaware seeking injunctive relief, an
unspecified amount of compensatory damages, treble damages and attorneys' fees,
costs and expenses. The complaint alleged that the Company was infringing
Phillips' Patent No. 4,376,851 (the " '851 Patent") for crystalline
polypropylene. Pursuant to a License Agreement dated as of May 15, 1983, as
amended (the "License Agreement"), Phillips granted the Company a non-exclusive
license to make, use and sell crystalline polypropylene covered by the '851
Patent. The complaint alleged that effective April 21, 1990, Phillips terminated
the License Agreement because it believed that, by the terms of the License
Agreement, all conditions precedent to such termination had occurred. The
complaint further alleged that, without an effective License Agreement, the
Company's continuing use of the '851 Patent constitutes an infringing use. An
amended complaint filed in May 1990 further alleged that the Company made a
material misrepresentation that induced Phillips to enter into the License
Agreement and that Phillips entered into the License Agreement as a consequence
of a mutual mistake of the parties. The amended complaint therefore alleged that
the License Agreement was void AB INITIO. The Company filed a motion to dismiss
Phillips' amended complaint for failure to state a claim. On December 30, 1993,
the court entered an order dismissing Phillips' claim that the License Agreement
was void AB INITIO, and ordered that the 1990 license termination issue be
resolved at trial. A trial was conducted before the United States District Court
in October 1994. At trial, Phillips sought damages of approximately $15.5
million, plus interest and fees, for alleged infringement for the period between
April 21, 1990 and trial. On June 19, 1995, the United States District Court
entered judgment in favor of the Company on the license termination issue and
concluded that Phillips had not properly terminated the License Agreement. Thus,
the License Agreement remains in effect, and the Company is not infringing the
'851 Patent. Phillips has appealed the court's judgment on the license
termination issue only. The appeal was argued on March 6, 1996 before the Court
of Appeals for the Federal Circuit. No decision has been entered by the Court of
Appeals. Although the Company believes that it has meritorious defenses to this
lawsuit, in the event of an unfavorable ruling, the Company will be required to
renegotiate a new license agreement at a substantially higher rate than paid
under the current license.
ODESSA RESIDENTS' TORT LITIGATION
On April 15, 1994, the national and state chapters of the NAACP and
approximately 770 residents of a neighborhood approximately one mile northwest
of the Shell Oil Company ("Shell"), the Company and Dynagen, Inc. ("Dynagen")
plants in Odessa, Texas petitioned the State District Court in Odessa, Texas to
intervene in a previously existing lawsuit against Dynagen to (a) add as
additional defendants the Company, Shell and General Tire Corporation (the
parent company of Dynagen) and (b) have the litigation certified as a class
action. The plaintiffs' petition seeks an unspecified amount of money damages
for past, present and future injuries to plaintiffs' health, wrongful death,
loss of consortium and reduction in property values; the conduct and payment of
property clean up, remediation and relocation costs; payment of expenses for
medical testing and monitoring; funding of pollution and health studies;
attorney's fees; punitive damages and injunctive relief. Plaintiffs' petition
specified alleged pollution from air emissions from the three plants as a basis
for their claims. The trial court has allowed intervention and severed the
action from the original lawsuit against Dynagen. Plaintiffs have withdrawn
their motion to have the litigation certified as a class claim. In November
1994, the plaintiffs filed an amended petition which substituted the Odessa
branch of the NAACP as
12
<PAGE>
plaintiff in place of the national and state chapters of the NAACP. The amended
complaint also added approximately 100 additional plaintiffs. Defendants are
challenging the NAACP's standing to participate in the lawsuit. Pretrial
discovery is ongoing.
------------------------
Although there can be no assurance of the final resolution of any of these
matters, the Company believes that, based upon its current knowledge of the
facts of each case, it has meritorious defenses to the various claims made and
intends to defend each suit vigorously, and the Company does not believe that
the outcome of any of these lawsuits will have a material adverse effect on the
Company's financial position, results of operations or cash flows.
With respect to certain pending or threatened proceedings involving the
discharge of materials into or protection of the environment, see "Item 1 --
Environmental and Related Regulation". The Company is also a party to various
lawsuits arising in the ordinary course of business and does not believe that
the outcome of any of these lawsuits will have a material adverse effect on the
Company's financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during
the fourth quarter of 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Registrant's common stock trades on the New York Stock Exchange under
the symbol "RXN". As of March 5, 1996, there were 756 record holders of common
stock. The following table sets forth the high and low sales prices of the
common stock as reported by the New York Stock Exchange for the last two fiscal
years.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1995:
Fourth Quarter......................................................... 12 1/4 8 7/8
Third Quarter.......................................................... 15 5/8 11 1/4
Second Quarter......................................................... 14 1/4 10 1/4
First Quarter.......................................................... 13 3/8 9
1994:
Fourth Quarter......................................................... 18 9 1/8
Third Quarter.......................................................... 17 1/8 8 3/8
Second Quarter......................................................... 11 3 5/8
First Quarter.......................................................... 4 3/4 2 7/8
</TABLE>
The Company did not declare or pay any cash dividends in 1994 or during the
first three quarters of 1995. In December 1995, the Board of Directors declared
a $0.04 per share dividend which was paid in January 1996, and on March 7, 1996,
the Board of Directors declared a dividend of $0.04 per share payable on April
4, 1996. Although the Credit Agreement and the indenture governing the 11 3/4%
Senior Notes (the "11 3/4% Indenture") limit the Company's ability to pay
dividends on the common stock, the Credit Agreement was amended to allow, and
the Company satisfied the requirements under the 11 3/4% Indenture to declare,
the dividends. Although the Company has not established a formal policy with
respect to the declaration of dividends, the Company will evaluate the
advisability of declaring future dividends on a quarterly basis based on a
number of factors, including the Company's financial condition and results of
operations. See "Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources".
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company for
the periods indicated. Information should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto included on the
pages immediately following the Index to Consolidated Financial Statements
appearing on page F-1. See "Item 7 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations". In connection with a
reorganization under Chapter 11 of the United States Bankruptcy Code, the
Company adopted as of September 30, 1992, the American Institute of Certified
Public Accountants' Statement of Position No. 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" (the "Reorganization
SOP"). The Company's basis of accounting for financial reporting purposes
changed as a result of adopting the Reorganization SOP. Accordingly, the results
of operations after September 30, 1992 are not comparable to results of
operations prior to such date, and the results of operations for the nine months
ended September 30, 1992 and the three months ended December 31, 1992 have not
been aggregated.
<TABLE>
<CAPTION>
POST-EMERGENCE PRE-EMERGENCE
--------------------------------------------- ---------------------------
THREE MONTHS NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED ENDED YEAR ENDED
------------------------------- DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1995 1994 1993 1992 1992 1991
--------- --------- --------- ------------ ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Net sales......................... $ 615,238 $ 537,957 $ 429,353 $ 98,854 $ 316,106 $ 449,728
Operating income.................. 125,146 75,085 14,504 1,418 9,392 12,028
Income (loss) before extraordinary
gain (loss)...................... 65,443 21,504 (25,243) (6,528) (31,476) (42,747)
Extraordinary gain (loss), net of
income taxes..................... -- (25,831) -- -- 123,672 --
--------- --------- --------- ------------ ------------- ------------
Net income (loss)................. $ 65,443 $ (4,327) $ (25,243) $ (6,528) $ 92,196 $ (42,747)
--------- --------- --------- ------------ ------------- ------------
--------- --------- --------- ------------ ------------- ------------
Weighted average shares
outstanding........................ 19,126 11,663 10,501 10,501
--------- --------- --------- ------------
--------- --------- --------- ------------
Income (loss) per share(1):
Income (loss) before extraordinary
loss............................. $ 3.42 $ 1.84 $ (2.40) $ (.62)
Extraordinary loss................ -- (2.21) -- --
--------- --------- --------- ------------
Net income (loss) per share....... $ 3.42 $ (.37) $ (2.40) $ (.62)
--------- --------- --------- ------------
--------- --------- --------- ------------
Dividends per share................. $ .04 $ -- $ -- $ --
--------- --------- --------- ------------
--------- --------- --------- ------------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheets Data:
Working capital................... $ 108,416 $ 140,039 $ 109,381 $ 104,824 $ 109,777
Total assets...................... 520,591 506,954 434,307 423,591 440,665
Long-term debt and other noncur-
rent liabilities................. 296,080 366,766 397,091 367,327 57,410
Liabilities subject to
compromise....................... -- -- -- -- 428,297(2)
Stockholders' equity (deficit).... 140,151 74,876 (5,137) 20,106 (94,813)
</TABLE>
- ------------------------
(1) Per share data for the pre-emergence periods is not presented because such
information is not comparable to the similar information for the
post-emergence periods.
(2) Represents increasing rate notes held prior to the reorganization referred
to above, and interest thereon.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The polyethylene, polypropylene and styrene markets in which the Company
competes are cyclical markets that are sensitive to relative changes in supply
and demand, which are in turn affected by general economic conditions. The
Company's plastic film and APAO businesses are generally less sensitive to the
economic cycles. Historically, the cyclical segments have experienced
alternating periods of tight supply and rising prices and profit margins,
followed by periods of large capacity additions resulting in oversupply and
declining prices and profit margins.
Following a significant improvement in domestic economic growth since the
second half of 1993, these markets experienced increased levels of demand
through the second quarter of 1995 which resulted in greater capacity
utilization and higher domestic and export prices. This increase in demand
enabled the Company and the industry in general to increase selling prices
significantly beginning in the second quarter of 1994 through the first half of
1995 even though feedstock costs were relatively stable. These price increases
were further impacted by temporary reductions in industry capacity in the second
half of 1994 due to plant outages resulting from accidents, natural disasters
and other unscheduled interruptions. During the second half of 1995, the
domestic petrochemical and polymer markets experienced a decrease in demand and
selling prices due to several factors, including inventory reductions by
customers, the slowdown in economic growth in the United States and a decrease
in exports, particularly to the Chinese market. In addition, prices for these
products were influenced by industry capacity additions in 1995.
In addition, a general trend by disposable diaper manufacturers towards
thinner diaper backsheet materials reduced the volume of film products sold into
this market in 1995. Since the disposable diaper market is the largest customer
segment in CT Film, this trend significantly affected its sales volumes and
operating results in 1995. However, CT Film is developing a number of strategies
intended to increase its sales and profits, including developing a new
generation of film products for the disposable diaper market, broadening
production capabilities, globalizing sales and marketing efforts and developing
new film products for the medical and packaging markets.
The prices of feedstocks fluctuate widely based on the prices of natural gas
and oil. During 1995, feedstocks accounted for approximately 27% of the
Company's total cost of sales. As a result, the Company's ability to pass on
increases in raw material costs to customers has a significant impact on
operating results. The feedstock supplies available in Odessa, Texas are
currently adequate for the Company's requirements.
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
The Company's overall sales and profitability were higher in 1995 than 1994.
As discussed above, the petrochemical and polymer markets in which the Company
participates were stronger in the first half of 1995 as compared to the second
half of 1995. Net sales increased $77.3 million (or 14%) from 1994 to 1995
principally due to an increase in average sales prices of styrene, polyethylene
and polypropylene, offset by a decrease in sales volumes for plastic film.
Styrene sales increased $30.3 million (or 34%) principally due to an increase in
average sales prices of 9 cents per pound. Polyethylene sales increased $22.5
million (or 15%) principally due to an increase in average sales prices of 9
cents per pound, partially offset by a decrease in sales volumes of 21.7 million
pounds. Polypropylene sales increased $13.0 million (or 17%) principally due to
an increase in average sales prices of 7 cents per pound. Plastic film sales
decreased $2.1 million (or 1%) principally due to a decrease in sales volumes of
20.3 million pounds principally from the lost sales volumes of the film sold to
the disposable diaper market for reasons discussed above, partially offset by an
increase in average sales prices of 10 cents per pound. APAO sales increased
$5.6 million (or 30%) principally due to an increase in sales volumes of 12.1
million pounds. Other sales increased $7.9 million in 1995 as compared to 1994
principally due to an increase in excess feedstock sales.
15
<PAGE>
The Company's gross profit percentage increased from 22% in 1994 to 29% in
1995 principally due to the increase in average sales prices of polyethylene,
polypropylene and styrene.
Marketing, general and administrative expenses increased $5.2 million (or
14%) from 1994 to 1995 principally due to higher information system costs to
support improvements to on-going operations, sales and marketing costs related
to the CT Film plant in England and higher employee compensation and benefits.
Research and development expenses increased $2.4 million (or 34%) principally
due to new product development at CT Film.
Due primarily to the factors discussed above, operating income increased
$50.1 million (or 67%) from 1994 to 1995.
Interest expense decreased $25.6 million (or 51%) principally due to lower
long-term debt as a result of the completion of a recapitalization plan in the
fourth quarter of 1994 and the repayment of bank debt in the first half of 1995.
Other, net decreased $7.7 million from 1994 to 1995 principally due to the
reversal in 1994 of a $7.4 million lawsuit accrual for which the Company
ultimately prevailed on appeal and due to the receipt in 1994 of approximately
$1.0 million of insurance proceeds received in settlement of a claim related to
a prior lawsuit.
Income tax expense increased $24.9 million from 1994 to 1995 principally due
to increased operating results.
In 1994, the Company recorded an extraordinary loss of $25.8 million, net of
income taxes of $15.8 million, as a result of the redemption of the Old Notes.
Due primarily to the factors discussed above, the Company had net income of
$65.4 million in 1995 compared with a net loss of $4.3 million in 1994.
1994 COMPARED TO 1993
Growth in the United States economy resulted in the strengthening of the
petrochemical and polymer markets during the year ended December 31, 1994. As a
result, sales volumes and average sales prices for the Company's major product
lines increased during 1994. Total net sales increased $108.6 million (or 25%)
from 1993 to 1994. Styrene sales increased $28.4 million (or 46%) from 1993 to
1994 principally due to a volume increase of approximately 49 million pounds and
an increase in average sales prices of 6 cents per pound. Polyethylene sales
increased $25.3 million (or 21%) from 1993 to 1994 due to a volume increase of
approximately 37 million pounds and an increase in average sales prices of 3
cents per pound. Plastic film sales increased $25.2 million (or 17%) principally
due to a volume increase of approximately 28 million pounds. Polypropylene sales
increased $13.1 million (or 20%) from 1993 to 1994 due to a volume increase of
approximately 16 million pounds and an increase in average sales prices of 4
cents per pound. APAO sales increased $3.5 million (or 23%) principally due to a
volume increase of approximately 7 million pounds. Excess feedstock sales also
contributed to the increase in sales.
The Company's gross profit percentage increased from 13% in 1993 to 22% in
1994 principally due to the increase in average sales prices discussed above and
lower unit manufacturing costs due to higher production volumes.
Marketing, general and administrative expenses increased $5.1 million (or
16%) from 1993 to 1994 principally due to higher employee benefits that are
related to the Company's improved operating performance. In addition, sales and
marketing costs increased due to the increase in sales volumes discussed above.
Research and development costs increased $0.5 million (or 7%) principally due to
an increase in new product development.
Due primarily to the factors discussed above, operating income increased
$60.6 million (or 418%) from 1993 to 1994.
16
<PAGE>
Cash interest expense increased and non-cash interest expense decreased $6.0
million principally due to the decision not to exercise the pay-in-kind feature
on the then existing increasing rate subordinated notes for the interest payment
made on November 15, 1994.
Interest income increased $0.9 million principally due to an increase in
cash and cash equivalents and the increase in general interest rates of
investments. Other, net increased $7.8 million from 1993 to 1994 principally due
to the reversal of a $7.4 million accrual for a lawsuit in which the Company
ultimately prevailed on appeal.
The income tax expense of $13.6 million in 1994 reflects current income
taxes payable of $16.1 million, partially offset by deferred income tax benefits
of $2.5 million, excluding the tax effect of the extraordinary loss discussed
below. The income tax benefit of $8.9 million in 1993 reflects current income
tax benefits of $4.8 million from the carryback of 1993 pretax losses in prior
years and deferred income tax benefits of $4.1 million.
In 1994, the Company had income before extraordinary loss of $21.5 million
compared with a loss of $25.2 million in 1993. In 1994, the Company recorded an
extraordinary loss of $25.8 million, net of income taxes of $15.8 million, as a
result of the redemption of the Old Notes. The income tax benefit from the
extraordinary loss reflects a current income tax benefit of $16.2 million,
partially offset by deferred income tax expense of $0.4 million.
Due primarily to the factors discussed above, the Company's net loss
decreased $20.9 million (or 83%) from 1993 to 1994.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1995, net cash provided by operating
activities increased $79.7 million as compared to 1994. This increase was
principally due to improved operating performance and changes in working
capital, primarily income taxes payable. The Company's 1995 federal income tax
liability of approximately $30 million was paid in March 1996.
In November 1994, as part of the Recapitalization, the Company entered into
(i) the 11 3/4% Indenture under which it borrowed the 11 3/4% Senior Notes of
$175 million, and (ii) the Credit Agreement under which the Company borrowed
$100 million under the Term Loan and secured the $80 million Revolving Credit
Facility. In addition to cash generated from operations, in 1995 the Company
received a $25 million advance payment from a customer as a result of a
multi-year agreement to supply a portion of annual styrene production. Using
cash generated from operations, this advance payment and existing cash balances,
the Company repaid $100 million of long-term debt under the Term Loan in the
first half of 1995. The 11 3/4% Senior Notes will mature on December 1, 2004.
On March 15, 1996, the Board of Directors approved the Financing, and the
Company executed a commitment letter with a bank to replace the existing
Revolving Credit Facility. The Financing would provide the New Credit Facility
in an initial principal amount of $150 million. The primary use of proceeds from
the New Credit Facility will be to provide funds to finance portions of the
Company's capital expenditure program at its Odessa, Texas plant over the next
three years, including the construction of the FPO plant, the modernization and
expansion of its olefins plant and the construction of a new LLDPE plant. The
Financing is contingent on a number of factors, including the negotiation of the
New Credit Facility. The Company anticipates consummation of the Financing
during the second quarter of 1996.
The Company believes that, based on current levels of operations and
anticipated growth, its cash flow from operations, together with other available
sources of liquidity, including the proceeds from the New Credit Facility, will
be adequate to make scheduled payments of interest on the 11 3/4% Senior Notes
and the New Credit Facility, to permit anticipated capital expenditures and to
fund working
17
<PAGE>
capital requirements. However, the ability of the Company to satisfy these
obligations depends on a number of significant assumptions, including but not
limited to, the demand for the Company's products, raw material costs and other
factors.
The 11 3/4% Indenture contains certain covenants that, among other things,
limit the ability of the Company to incur additional indebtedness and to
repurchase subordinated indebtedness, incur or suffer to exist certain liens,
pay dividends, make certain investments, sell significant fixed assets and
engage in mergers and consolidations.
The Credit Agreement contains covenants which limit, among other things, the
incurrence of additional indebtedness by the Company, the payment of dividends,
the creation of liens on the Company's assets, the making of certain investments
by the Company, certain mergers, sales of certain fixed assets and the
prepayment of the 11 3/4% Senior Notes. The Credit Agreement also contains
certain financial covenants relating to the financial condition of the Company,
including covenants relating to the ratio of its earnings to its interest
expense, the ratio of its earnings to its fixed charges and a leverage ratio.
The amount of borrowings under the Revolving Credit Facility is based upon a
formula related to inventory and accounts receivable.
During 1995 and 1994, the Company expended approximately $54.6 and $30.9
million, respectively, for capital expenditures. For 1996, the Company has
budgeted approximately $100 million for proposed capital expenditures, including
approximately $52 million towards the completion of the FPO plant and
approximately $23 million towards the modernization of the olefins plant at the
Odessa Facility.
A number of potential environmental liabilities exist which relate to
certain contaminated property. In addition, a number of potential environmental
costs relate to pending or proposed environmental regulations. No assurance can
be given that all of the potential liabilities arising out of the Company's
present or past operations have been identified or that the amounts that might
be required to investigate and remediate such sites or comply with pending or
proposed environmental regulations can be accurately estimated. The Company has
approximately $20.3 million accrued in the December 31, 1995 balance sheet as an
estimate of its total potential environmental liability with respect to
investigating and remediating known and assessed site contamination. If,
however, additional liabilities with respect to environmental contamination are
identified, there is no assurance that additional amounts that might be required
to investigate and remediate such potential sites would not have a material
adverse effect on the financial position, results of operations or cash flows of
the Company. In addition, future regulatory developments could restrict or
possibly prohibit existing methods of environmental compliance. At this time,
the Company is unable to determine the potential consequences such possible
future regulatory developments would have on its financial condition. Management
continually reviews its estimates of potential environmental liabilities. The
Company does not currently carry environmental impairment liability insurance to
protect it against such contingencies because the Company has found such
coverage is available only at great cost and with broad exclusions. As part of
its financial assurance requirements under RCRA and equivalent Texas law, the
Company has deposited approximately $3.5 million in trust to cover closure and
post-closure costs and plugging and abandonment costs at certain of the Odessa
Facility's hazardous waste management units. Based on the Company's improved
financial condition, management believes it will be able to meet the regulatory
requirements to have TNRCC release the funds in the trust during 1996.
The Company's operating expenditures for environmental remediation,
compliance and waste disposal were approximately $8.3 million and $6.6 million
in 1995 and 1994, respectively. In 1996, the Company anticipates spending
approximately $7 million for environmental remediation, compliance and waste
disposal. Of that amount, expenditures relating to remediation are projected to
be approximately $2 million in 1996. Compliance and waste disposal costs are
expected to increase slightly over the next several years as a result of
increasingly stringent regulations that affect waste handling
18
<PAGE>
alternatives. In 1995 and 1994, the Company also expended approximately $1.2
million and $2.0 million, respectively, relating to environmental capital
expenditures. For the foreseeable future, the Company expects to incur
approximately $2 million to $4 million per year in capital spending to address
the requirements of environmental laws. Annual amounts could vary depending on a
variety of factors, such as the control measures or remedial technologies
ultimately required and the time allowed to meet such requirements.
ITEM 8. FINANCIAL STATEMENTS
The Company's Consolidated Financial Statements required by this item are
included on the pages immediately following the Index to Consolidated Financial
Statements appearing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item will be contained in the definitive
proxy statement (the "Proxy Statement") of the Company to be filed in connection
with its forthcoming annual meeting of stockholders scheduled for April 30,
1996, except for the information regarding executive officers of the Company
contained in Part I of this Annual Report on Form 10-K. The information required
by this item to be contained in the Proxy Statement is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be contained in the Proxy
Statement. Such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be contained in the Proxy
Statement. Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be contained in the Proxy
Statement. Such information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements:
See Index to Consolidated Financial Statements on page F-1.
2. Financial Statement Schedules:
See Index to Consolidated Financial Statements on page F-1.
3. Exhibits:
<TABLE>
<C> <C> <S>
2.1 -- First Amended Plan of Reorganization of Rexene Products Company, et
al., dated April 29, 1992 (filed as Exhibit 2.1 to Rexene Corporation's
Form 8-K Current Report dated July 7, 1992 and incorporated herein by
reference).
2.2 -- Order Confirming First Amended Plan of Reorganization, dated April 29,
1992 (filed as Exhibit 2.2 to Rexene Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992 and incorporated
herein by reference).
</TABLE>
19
<PAGE>
<TABLE>
<C> <C> <S>
2.3 -- Plan and Agreement of Merger, between Rexene Corporation and Rexene
Products Company, dated as of September 11, 1992 (filed as Exhibit 2.3
to Rexene Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 and incorporated herein by reference).
3.1.1 -- Restated Certificate of Incorporation of Rexene Products Company (a/k/a
Rexene Corporation), dated September 11, 1992 (filed as Exhibit 3.1 to
Rexene Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 and incorporated herein by reference).
3.1.2 -- Amendment to Certificate of Incorporation, dated June 9, 1993 (filed as
Exhibit 3.1.2 to Rexene Corporation's Annual Report on Form 10-K for
the year ended December 31, 1993 and incorporated herein by reference).
3.2 -- Amendments to By-Laws, adopted May 24, 1994, together with a
restatement of Rexene Corporation's By-Laws incorporating all
amendments through May 24, 1994 (filed as Exhibit 3.2.3 to Rexene
Corporation's Form 10-Q Quarterly Report for the three months ended
June 30, 1994 and incorporated herein by reference).
4.1 -- Indenture, dated as of November 29, 1994, between Rexene Corporation,
as Issuer, and Bank One, Texas, N.A., as Trustee, for $175,000,000
11 3/4% Senior Notes due 2004 (filed as Exhibit 4.1 to Rexene
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by reference).
4.2.1 -- Stockholder Rights Agreement, between Rexene Corporation and American
Stock Transfer & Trust Company, as Rights Agent, dated as of January
26, 1993 (filed as Exhibit 4.20 to Rexene Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference).
4.2.2 -- Amendment No. 1 to Stockholder Rights Agreement (filed as Exhibit 1 to
Rexene Corporation's Form 8-A/A filed on October 21, 1994 and
incorporated herein by reference).
10.1 -- Rexene Corporation 1988 Stock Incentive Plan (filed as Exhibit 10.5 to
Rexene Corporation's Registration Statement on Form S-1 (SEC No.
33-22723) and incorporated herein by reference).
10.2 -- Rexene Corporation 1993 Non-Qualified Stock Option Plan (filed as
Exhibit 10.2 to Rexene Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992 and incorporated herein by
reference).
10.3 -- Rexene Corporation 1994 Long-Term Incentive Plan (filed as Exhibit 10.2
to Amendment No. 1 to Rexene Corporation's Registration Statement on
Form S-3 (SEC File No. 33-55507) as filed on October 21, 1994 and
incorporated herein by reference).
10.4 -- Non-Qualified Stock Option Plan for Outside Directors of Rexene
Corporation (filed as Exhibit 10.3 to Rexene Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference).
10.5 -- 1995 Stock Option Plan for Outside Directors (filed as Exhibit 10.19 to
Rexene Corporation's Form 10-Q Quarterly Report for the three months
ended June 30, 1995 and incorporated herein by reference).
</TABLE>
20
<PAGE>
<TABLE>
<C> <C> <S>
10.6 -- Rexene Corporation Supplemental Executive Retirement Plan (filed as
Exhibit 10.3 to Amendment No. 1 to Rexene Corporation's Registration
Statement on Form S-3 (SEC File No. 33-55507) as filed on October 21,
1994 and incorporated herein by reference).
10.7 -- Rexene Corporation 1995 Annual Incentive Bonus Plan (filed as Exhibit
10.6.3 to Rexene Corporation's Annual Report Form 10-K for the fiscal
year ended December 31, 1994 and incorporated herein by reference).
10.8.1 -- Rexene Corporation Executive Management Committee Severance Policy
(filed as Exhibit 10.5 to Rexene Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1992 and incorporated
herein by reference).
10.8.2 -- Form of Letter Agreement between Rexene Corporation and each member of
its Executive Management Committee.
10.9.1 -- Executive Security Plan of Rexene Products Company (filed as Exhibit
10.8 to Rexene Corporation's Registration Statement on Form S-1 (SEC
No. 33-22723) and incorporated herein by reference).
10.9.2 -- Form of Letter Agreement between Rexene Corporation and L.N. Anderson
and J.E. Knott dated as of March 1, 1995 relating to waiver of certain
rights under the Executive Security Plan.
10.10 -- Letter Agreement, dated as of March 16, 1992, between Rexene
Corporation and Arthur L. Goeschel (filed as Exhibit 10.13 to Rexene
Corporation's Annual Report on Form 10-K for the year ended December
31, 1991 and incorporated herein by reference).
10.11 -- Indemnity Agreement, dated as of May 25, 1990, by and among Rexene
Corporation, Rexene Products Company and Andrew J. Smith (filed as
Exhibit 10.8.2 to Rexene Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992 and incorporated herein by
reference).
10.12.1 -- Non-Qualified Stock Option Agreement, dated as of June 15, 1988,
between Rexene Corporation and Lavon N. Anderson (filed as Exhibit
10.29.2 to Rexene Corporation's Registration Statement on Form S-1 (SEC
No. 33-22723) and incorporated herein by reference).
10.12.2 -- Indemnity Agreement, dated as of May 25, 1990, by and among Rexene
Corporation, Rexene Products Company and Lavon N. Anderson (filed as
Exhibit 10.9.3 to Rexene Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992 and incorporated herein by
reference).
10.13 -- Employment Agreement, dated as of July 23, 1990, between Rexene
Products Company and Kevin W. McAleer (filed as Exhibit 10.13 to Rexene
Corporation's Annual Report on Form 10-K for the year ended December
31, 1990, and incorporated herein by reference).
10.14 -- Employment Agreement, dated as of May 29, 1990, between Rexene Products
Company and Jack E. Knott (filed as Exhibit 10.15 to Rexene
Corporation's Annual Report on Form 10-K for the year ended December
31, 1990 and incorporated herein by reference).
10.15.1 -- Credit Agreement, dated as of November 29, 1994, among Rexene
Corporation, as Borrower, The Bank of Nova Scotia, as Agent, and the
Lenders Signatory thereto (filed as Exhibit 10.16 to Rexene
Corporation's Annual Report on Form 10-K for the year ended December
31, 1994, and incorporated herein by reference).
</TABLE>
21
<PAGE>
<TABLE>
<C> <C> <S>
10.15.2 -- First Amendment and Supplement to Credit Agreement, dated as of July
17, 1995, among Rexene Corporation, as Borrower, The Bank of Nova
Scotia, as Agent, and the Lenders Signatory thereto.
10.16 -- Indemnity Agreement, dated as of May 25, 1990, by and among Rexene
Corporation, Rexene Products Company and William B. Hewitt (filed as
Exhibit 10.22 to Rexene Corporation's Annual Report on Form 10-K for
the year ended December 31, 1992, and incorporated herein by
reference).
21.1 -- Subsidiaries of Rexene Corporation.
23.1 -- Consent of Price Waterhouse LLP.
</TABLE>
(b) No Form 8-K was filed in the fourth quarter of 1995.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, as of March 15, 1996.
REXENE CORPORATION
Registrant
By: /s/ ANDREW J. SMITH
-----------------------------------
Andrew J. Smith
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below as of March 15, 1996 by the following persons on
behalf of the registrant and in the capacities indicated.
<TABLE>
<S> <C>
/s/ ARTHUR L. GOESCHEL /s/ ANDREW J. SMITH
- -------------------------------------------- --------------------------------------------
Arthur L. Goeschel Andrew J. Smith
CHAIRMAN OF THE BOARD CHIEF EXECUTIVE OFFICER AND DIRECTOR
/s/ LAVON N. ANDERSON /s/ HARRY B. BARTLEY, JR.
- -------------------------------------------- --------------------------------------------
Lavon N. Anderson Harry B. Bartley, Jr.
PRESIDENT AND CHIEF OPERATING DIRECTOR
OFFICER AND DIRECTOR
/s/ R. JAMES COMEAUX /s/ WILLIAM B. HEWITT
- -------------------------------------------- --------------------------------------------
R. James Comeaux William B. Hewitt
DIRECTOR DIRECTOR
/s/ ILAN KAUFTHAL /s/ CHARLES O'CONNELL
- -------------------------------------------- --------------------------------------------
Ilan Kaufthal Charles O'Connell
DIRECTOR DIRECTOR
/s/ HEINN TOMFOHRDE /s/ KEVIN W. MCALEER
- -------------------------------------------- --------------------------------------------
Heinn Tomfohrde Kevin W. McAleer
DIRECTOR EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
/s/ GEFF PERERA
- --------------------------------------------
Geff Perera
VICE PRESIDENT AND CONTROLLER
</TABLE>
23
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
ITEMS 8 AND 14(A)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Responsibility for the Consolidated Financial Statements................................................ F-2
Report of Independent Accountants....................................................................... F-2
Consolidated Financial Statements:
Consolidated Statements of Operations for the Years Ended December 31, 1995, 1994 and 1993............ F-3
Consolidated Balance Sheets as of December 31, 1995 and 1994.......................................... F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the Years Ended December 31,
1995, 1994 and 1993.................................................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993............ F-6
Notes to Consolidated Financial Statements............................................................ F-7-21
</TABLE>
All Financial Statement Schedules have been omitted because (i) the required
information is not present in amounts sufficient to require submission of the
schedule, (ii) the information required is included in the Consolidated
Financial Statements or the Notes thereto, or (iii) the information required in
the schedules is not applicable to the Company.
F-1
<PAGE>
RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL REPORTS
Company management is responsible for the preparation, accuracy and
integrity of the consolidated financial statements and other financial
information included in this Annual Report. This responsibility includes
preparing the statements in accordance with generally accepted accounting
principles and necessarily includes estimates that are based on management's
best judgements.
To help ensure the accuracy and integrity of Company financial data,
management maintains internal controls which are designed to provide reasonable
assurance that transactions are executed as authorized, that they are accurately
recorded and that assets are properly safeguarded. These controls are monitored
by an ongoing program of internal audits. It is essential for all Company
employees to conduct their business affairs in keeping with the highest ethical
standards as outlined in our code of conduct policy, "Conduct of Company
Employees." Careful selection of employees, and appropriate divisions of
responsibility, also help us to achieve our control objectives.
The financial statements have been audited by the Company's independent
public accountants, Price Waterhouse LLP. Their report is also shown on this
page.
The Board of Directors, acting through its Audit Committee composed entirely
of outside directors, oversees the adequacy of the Company's control
environment. The Audit Committee meets periodically with representatives of
Price Waterhouse LLP, internal financial management and the internal auditors to
review accounting, control, auditing and financial reporting matters. The
independent auditors and the internal auditors also have full and free access to
meet privately with the Audit Committee.
Andrew J. Smith Kevin W. McAleer
Chief Executive Officer Chief Financial Officer
------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Rexene Corporation
In our opinion, the accompanying consolidated financial statements listed on
page F-1 present fairly, in all material respects, the financial position of
Rexene Corporation and its subsidiaries (the Company) at December 31, 1995 and
1994, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Dallas, Texas
February 7, 1996, except as to Note 20,
for which the date is March 15, 1996
F-2
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net sales.................................................................. $ 615,238 $ 537,957 $ 429,353
----------- ----------- -----------
Operating expenses:
Cost of sales............................................................ 437,640 418,048 375,609
Marketing, general and administrative.................................... 42,962 37,764 32,641
Research and development................................................. 9,490 7,060 6,599
----------- ----------- -----------
490,092 462,872 414,849
----------- ----------- -----------
Operating income........................................................... 125,146 75,085 14,504
Interest expense........................................................... (24,343) (49,885) (49,834)
Interest income............................................................ 3,250 2,337 1,392
Other, net................................................................. (174) 7,524 (245)
----------- ----------- -----------
Income (loss) before income taxes and extraordinary loss................... 103,879 35,061 (34,183)
Income tax (expense) benefit............................................... (38,436) (13,557) 8,940
----------- ----------- -----------
Income (loss) before extraordinary loss.................................... 65,443 21,504 (25,243)
Extraordinary loss......................................................... -- (25,831) --
----------- ----------- -----------
Net income (loss).......................................................... $ 65,443 $ (4,327) $ (25,243)
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares outstanding........................................ 19,126 11,663 10,501
----------- ----------- -----------
----------- ----------- -----------
Income (loss) per share:
Income (loss) before extraordinary loss.................................. $ 3.42 $ 1.84 $ (2.40)
Extraordinary loss....................................................... -- (2.21) --
----------- ----------- -----------
Net income (loss)........................................................ $ 3.42 $ (0.37) $ (2.40)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Cash and cash equivalents............................................................... $ 47,258 $ 45,822
Deposit held in trust................................................................... 3,547 8,000
Accounts receivable, net................................................................ 73,520 77,433
Inventories............................................................................. 62,257 62,726
Deferred income taxes................................................................... 5,663 8,625
Prepaid expenses and other.............................................................. 531 2,745
----------- -----------
Total current assets................................................................ 192,776 205,351
----------- -----------
Property, plant and equipment, net...................................................... 291,675 258,119
Intangible assets, net.................................................................. 11,811 16,062
Other noncurrent assets................................................................. 24,329 27,422
----------- -----------
$ 520,591 $ 506,954
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable........................................................................ $ 29,768 $ 38,019
Income taxes payable.................................................................... 30,778 --
Current portion of long-term debt....................................................... -- 10,000
Accrued liabilities..................................................................... 14,319 9,488
Accrued interest........................................................................ 1,714 1,894
Employee benefits payable............................................................... 7,781 5,911
----------- -----------
Total current liabilities........................................................... 84,360 65,312
----------- -----------
Long-term debt.......................................................................... 175,000 265,000
Other noncurrent liabilities............................................................ 67,107 49,999
Deferred income taxes................................................................... 53,973 51,767
Commitments and contingencies........................................................... -- --
Stockholders' equity:
Preferred stock, par value $.01 per share; 1 million shares authorized; none issued
and outstanding...................................................................... -- --
Common stock, par value $.01 per share; 100 million shares authorized; 18.7 and 18.6
million shares issued and outstanding, respectively.................................. 187 186
Paid-in capital....................................................................... 111,247 110,355
Retained earnings (deficit)........................................................... 28,595 (36,098)
Foreign currency translation adjustment............................................... 122 433
----------- -----------
Total stockholders' equity.......................................................... 140,151 74,876
----------- -----------
$ 520,591 $ 506,954
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK RETAINED CURRENCY
---------------------- PAID-IN EARNINGS TRANSLATION
SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT TOTAL
--------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992................ 10,501 $ 105 $ 26,529 $ (6,528) $ $ 20,106
Net loss.................................. -- -- -- (25,243) -- (25,243)
--------- ----- ----------- ---------- ----------- -----------
Balance, December 31, 1993................ 10,501 105 26,529 (31,771) -- (5,137)
Issuance of common stock.................. 8,124 81 83,826 -- -- 83,907
Foreign currency translation adjustment... -- -- -- -- 433 433
Net loss.................................. -- -- -- (4,327) -- (4,327)
--------- ----- ----------- ---------- ----------- -----------
Balance, December 31, 1994................ 18,625 186 110,355 (36,098) 433 74,876
Issuance of common stock.................. 120 1 365 -- -- 366
Tax benefit of directors' and employees'
compensation deduction................... -- -- 527 -- -- 527
Foreign currency translation adjustment... -- -- -- -- (311) (311)
Dividends on common stock
($.04 per share)......................... -- -- -- (750) -- (750)
Net income................................ -- -- -- 65,443 -- 65,443
--------- ----- ----------- ---------- ----------- -----------
Balance, December 31, 1995................ 18,745 $ 187 $ 111,247 $ 28,595 $ 122 $ 140,151
--------- ----- ----------- ---------- ----------- -----------
--------- ----- ----------- ---------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
------------ ------------ ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................................... $ 65,443 $ (4,327) $ (25,243)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization........................................ 21,475 18,959 17,446
Deferred income taxes................................................ 5,168 (2,476) (4,160)
Amortization of debt issuance costs.................................. 2,876 -- --
Extraordinary loss, net of income taxes.............................. -- 25,831 --
Reversal of lawsuit judgment......................................... -- (7,400) --
Non-cash interest expense............................................ -- 19,441 25,388
Change in:
Deposits held in trust............................................. 4,453 -- --
Accounts receivable................................................ 3,872 (19,588) (6,049)
Inventories........................................................ 5,943 (10,111) 1,071
Prepaid expenses and other......................................... 567 413 (276)
Income taxes....................................................... 32,952 19,550 (4,894)
Accounts payable................................................... (8,254) 10,621 6,999
Accrued interest................................................... (180) (1,203) (48)
Employee benefits payable and accrued liabilities.................. 2,369 3,528 (756)
Other noncurrent liabilities....................................... (2,492) 3,189 1,006
Other................................................................ (1,716) (3,643) 857
------------ ------------ ----------
Total adjustments................................................ 67,033 57,111 36,584
------------ ------------ ----------
Net cash provided by operating activities................................ 132,476 52,784 11,341
------------ ------------ ----------
Cash flows used for investing activities -- capital
expenditures............................................................ (54,606) (30,876) (17,008)
------------ ------------ ----------
Cash flows from financing activities:
Repayment of debt...................................................... (100,000) (352,629) --
Advance payment from customer, net of repayments....................... 23,200 -- --
Proceeds from issuance of common stock, net............................ 366 83,907 --
Proceeds from issuance of debt......................................... -- 275,000 --
Bank borrowings........................................................ -- 7,000 2,000
Repayment of bank borrowings........................................... -- (9,000) --
Debt issuance costs and other.......................................... -- (10,899) --
------------ ------------ ----------
Net cash provided by (used for) financing activities..................... (76,434) (6,621) 2,000
------------ ------------ ----------
Net increase (decrease) in cash and cash equivalents..................... 1,436 15,287 (3,667)
Cash and cash equivalents at beginning of year........................... 45,822 30,535 34,202
------------ ------------ ----------
Cash and cash equivalents at end of year................................. $ 47,258 $ 45,822 $ 30,535
------------ ------------ ----------
------------ ------------ ----------
Supplemental cash flow information:
Cash paid for interest................................................. $ 23,740 $ 30,915 $ 24,039
Cash paid for income taxes............................................. $ 1,933 $ 2,451 $ 114
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Rexene Corporation (the "Company") manufactures and markets a wide variety
of products through two operating divisions. The products range from value added
specialty products, such as customized plastic films, to commodity
petrochemicals, such as styrene. These products are used in a wide variety of
industrial and consumer-related applications. The Company's principal products
are plastic film, polyethylene, polypropylene, Rextac-Registered Trademark-
amorphous polyalphaolefin ("APAO") and styrene. The markets in which the Company
competes are cyclical markets that are sensitive to relative changes in supply
and demand, which in turn are affected by general economic conditions. The
Company's plastic film and APAO businesses are generally less sensitive to the
economic cycles.
MANAGEMENT ASSUMPTIONS
The preparation of the consolidated financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at December 31,
1995 and 1994 and the reported amounts of revenues and expenses during the years
ended December 31, 1995, 1994 and 1993. Actual results could differ from these
estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include its
wholly-owned subsidiaries. Significant intercompany transactions and balances
are eliminated.
CASH AND CASH EQUIVALENTS
Cash equivalents represent short-term investments with original maturities
of three months or less.
INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is provided
utilizing the straight-line method over the estimated useful lives of the
assets, ranging from 3 to 20 years. Improvements are capitalized, while repair
and maintenance costs are charged to operations as incurred. Interest costs are
capitalized as part of major construction projects. Upon disposal of assets, the
cost and related accumulated depreciation are removed from the accounts and the
resulting gain or loss is included in income.
INTANGIBLE ASSETS
Debt issuance costs are amortized on a straight-line basis, over the term of
the related debt, ranging from five to ten years. Reorganization value in excess
of amounts allocable to identifiable assets is amortized on a straight-line
basis over fifteen years. Other intangible assets are stated at cost and consist
primarily of licensing agreements and patents, which are amortized on a
straight-line basis over five years.
INCOME TAXES
The Company accounts for income taxes following an asset and liability
approach to financial accounting and reporting of income taxes.
F-7
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
Operations of the foreign subsidiary use the local currency of the country
of operation as the functional currency. The financial statements of the foreign
subsidiary are translated at current and average exchange rates, with any
resulting translation adjustments included in the foreign currency translation
adjustment account in stockholders' equity.
INCOME (LOSS) PER SHARE
Income (loss) per share is based on the weighted average number of shares of
common stock and, if dilutive, common stock equivalents outstanding.
RECLASSIFICATIONS
Certain amounts in the consolidated financial statements for periods prior
to 1995 have been reclassified to conform with the 1995 presentation.
NEW ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based
Compensation", which generally establishes financial accounting and reporting
standards for stock-based employee compensation plans. This statement is
effective for fiscal years beginning after December 15, 1995. The Company will
adopt this new statement effective January 1, 1996, and as permitted, the
Company will measure and record compensation expense in accordance with current
practices as prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and will also provide disclosure
about pro forma compensation expense. Such adoption will not result in a charge
to earnings in the Company's consolidated financial statements.
During 1995, the Company adopted SFAS No. 121, "Impairment of Long-Lived
Assets." There was no adjustment recorded as a result of adopting this standard.
The Company periodically compares the carrying value of its long-lived assets,
principally property, plant and equipment, to undiscounted cash flows generated
by the long-lived assets. The Company's undiscounted cash flows exceed the
carrying value of its long-lived assets.
2. RECAPITALIZATION
In the fourth quarter of 1994, the Company completed a recapitalization plan
(the "Recapitalization") consisting of (i) the issuance of 8 million shares of
common stock at $11.00 per share, (ii) the issuance of 11 3/4% Senior Notes due
2004 (the "11 3/4% Senior Notes") in an aggregate principal amount of $175
million, (iii) the establishment of a new credit facility (the "Credit
Agreement"), providing the Company with a $100 million term loan (the "Term
Loan") and an $80 million revolving line of credit (the "Revolving Credit
Facility"), (iv) the redemption and defeasance of the Company's existing
increasing rate senior notes (the "Old Notes"), (v) the repayment in full of the
outstanding indebtedness under the Company's existing credit agreement. No
amount has been borrowed under the Revolving Credit Facility. In the first six
months of 1995, the Company prepaid all of the Term Loan. In connection with the
redemption of the Old Notes, the Company recorded an extraordinary loss of $25.8
million (net of income tax benefits of $15.8 million).
F-8
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Trade............................................................................ $ 65,719 $ 74,026
Other............................................................................ 11,175 7,376
--------- ---------
76,894 81,402
Less allowances.................................................................. (3,374) (3,969)
--------- ---------
$ 73,520 $ 77,433
--------- ---------
--------- ---------
</TABLE>
No bad debt expense was recorded during the years ended December 31, 1995
and 1994. Bad debt expense for the year ended December 31, 1993 was $223,000.
During the year ended December 31, 1994, there was a net recovery of previously
written-off accounts of $162,000. Uncollectible accounts written off against the
allowance for bad debts, net of recoveries for the years ended December 31, 1995
and 1993 were $595,000 and $925,000, respectively.
4. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Raw materials.................................................................... $ 20,144 $ 21,363
Work in progress................................................................. 5,356 8,014
Finished goods................................................................... 36,757 33,349
--------- ---------
$ 62,257 $ 62,726
--------- ---------
--------- ---------
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Land.......................................................................... $ 5,823 $ 5,819
Buildings..................................................................... 22,697 20,720
Plant and equipment........................................................... 284,749 252,817
Construction in progress...................................................... 34,258 15,895
----------- -----------
347,527 295,251
Less accumulated depreciation................................................. (55,852) (37,132)
----------- -----------
$ 291,675 $ 258,119
----------- -----------
----------- -----------
</TABLE>
Depreciation expense for the years ended December 31, 1995, 1994 and 1993 is
$19,123,000, $17,426,000 and $16,059,000, respectively. During the years ended
December 31, 1995, 1994 and 1993, $2,577,000, $1,412,000 and $1,259,000,
respectively, of interest was capitalized in connection with construction
projects.
F-9
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization are (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Debt issuance costs.............................................................. $ 9,735 $ 9,735
Less accumulated amortization.................................................... (2,991) (116)
--------- ---------
6,744 9,619
--------- ---------
Reorganization value in excess of amounts allocable to identifiable assets....... 4,298 4,298
Less accumulated amortization.................................................... (1,171) (904)
--------- ---------
3,127 3,394
--------- ---------
Other intangible assets.......................................................... 5,544 5,544
Less accumulated amortization.................................................... (3,604) (2,495)
--------- ---------
1,940 3,049
--------- ---------
$ 11,811 $ 16,062
--------- ---------
--------- ---------
</TABLE>
7. OTHER NONCURRENT ASSETS
Other noncurrent assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Spare parts inventories.......................................................... $ 15,760 $ 18,380
Unrecognized prior service cost, net of accumulated amortization of $389 in
1995............................................................................ 2,763 3,152
Deposit in rabbi trust........................................................... 2,766 --
Long-term note receivable........................................................ 1,550 --
Deposits held in trusts.......................................................... 3,547 10,651
Other............................................................................ 1,490 3,239
--------- ---------
27,876 35,422
Less: current portion of deposits held in trust.................................. (3,547) (8,000)
--------- ---------
$ 24,329 $ 27,422
--------- ---------
--------- ---------
</TABLE>
In 1995, the Company deposited $2.8 million in a rabbi trust account to fund
a Supplemental Executive Retirement Plan (see note 15). The deposits held in
trusts for the benefit of the Texas Natural Resource Conservation Commission
("TNRCC") were established and funded to comply with the financial assurance
requirements of the Resource Conservation and Recovery Act. Based on the
Company's improved financial condition, management believes it will be able to
meet the regulatory requirements to have TNRCC release the funds in the trust
during 1996.
F-10
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Accrued taxes, other than income.................................................. $ 2,811 $ 2,836
Current portion of advance payment from customer (see note 10).................... 3,600 --
Other accrued expenses............................................................ 7,908 6,652
--------- ---------
$ 14,319 $ 9,488
--------- ---------
--------- ---------
</TABLE>
9. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Senior Notes due November 2004................................................ $ 175,000 $ 175,000
----------- -----------
Bank borrowings under the Credit Agreement.................................... -- 100,000
Less: current portion......................................................... -- (10,000)
----------- -----------
-- 90,000
----------- -----------
$ 175,000 $ 265,000
----------- -----------
----------- -----------
</TABLE>
SENIOR NOTES
At December 31, 1995 and 1994, the fair market value of the 11 3/4% Senior
Notes approximated $187 million and $178 million, respectively, based on quoted
market rates. The 11 3/4% Senior Notes rank senior in right of payment to any
subordinated indebtedness of the Company. The 11 3/4% Senior Notes rank PARI
PASSU in right of payment with all senior borrowings, including borrowings under
the Credit Agreement. The Company has no such outstanding subordinated
indebtedness at December 31, 1995 and 1994.
Interest is payable on the 11 3/4% Senior Notes semiannually on June 1 and
December 1 at an annual interest rate of 11 3/4%.
The 11 3/4% Senior Notes are not redeemable, in whole or in part, prior to
December 1, 1999, except that, at any time prior to December 1, 1997, the
Company may redeem up to an aggregate of $58.3 million principal amount of
11 3/4% Senior Notes, at a price equal to 110% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the redemption date with the net
cash proceeds of any future offerings of common stock of the Company; provided,
however, that at least $100 million aggregate principal amount of 11 3/4% Senior
Notes is outstanding immediately following each such redemption; and provided
further that each such redemption occurs within 60 days of the date of the
closing of the applicable offering. On or after December 1, 1999, the 11 3/4%
Senior Notes are redeemable, at the Company's option, in whole or in part, at
the redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest, if any, to the date of redemption.
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ----------------------------------------------------------------------- -----------
<S> <C>
1999................................................................... 105.875%
2000................................................................... 103.917%
2001................................................................... 101.958%
2002 and thereafter.................................................... 100.000%
</TABLE>
F-11
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT (CONTINUED)
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the 11 3/4% Senior Notes.
The indenture governing the 11 3/4% Senior Notes contains certain covenants
that, among other things, limit the ability of the Company to incur additional
indebtedness and to repurchase subordinated indebtedness, incur or suffer to
exist certain liens, pay dividends, make certain investments, sell significant
fixed assets and engage in mergers and consolidations.
CREDIT AGREEMENT
Borrowings under the Credit Agreement bear interest at a floating rate based
on the prime rate or, at the Company's option, on the reserve-adjusted London
Interbank offered rate and is secured by the pledge of substantially all of the
assets of the Company, including inventory and accounts receivable and the
proceeds thereof, but excluding the property, plant and equipment at the plant
in Odessa, Texas and the plant in Scunthorpe, England. Availability of
borrowings under the Revolving Credit Facility is based upon a formula related
to inventory and accounts receivable. At December 31, 1995, approximately $3.4
million of stand-by letters of credit were outstanding under the Credit
Agreement.
The Credit Agreement contains covenants which limit, among other things, the
incurrence of additional indebtedness by the Company, the payment of dividends,
the creation of liens on the Company's assets, the making of certain investments
by the Company, certain mergers, sales of certain fixed assets and the
prepayment of the 11 3/4% Senior Notes. The Credit Agreement also contains
certain financial covenants relating to the financial condition of the Company,
including covenants relating to the ratio of its earnings to its interest
expense, the ratio of its earnings to its fixed charges and a leverage ratio.
10. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Accrued environmental remediation costs.......................................... $ 20,331 $ 22,742
Advance payment from customer.................................................... 19,600 --
Accumulated postretirement benefit obligation (note 15).......................... 15,841 15,259
Pension liabilities (note 15).................................................... 6,730 6,355
Other............................................................................ 4,605 5,643
--------- ---------
$ 67,107 $ 49,999
--------- ---------
--------- ---------
</TABLE>
In July 1995, the Company received a $25 million advance payment from a
customer as a result of a multi-year agreement to supply a portion of annual
styrene production. The unamortized portion of this advance payment, net of the
current portion, is included as a noncurrent liability above. This advance
payment is secured by a lien on the styrene plant in Odessa, Texas.
F-12
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS
The future payments of rentals on buildings, computers, office equipment and
transportation equipment under the terms of noncancellable operating lease
agreements are as follows (in thousands):
<TABLE>
<S> <C>
For the years ending December 31,
1996...................................................... $ 7,481
1997...................................................... 5,311
1998...................................................... 4,148
1999...................................................... 3,417
2000...................................................... 2,233
2001 and thereafter....................................... 4,279
---------
Total minimum lease payments.............................. $ 26,869
---------
---------
</TABLE>
Rental expense under operating leases for the years ended December 31, 1995,
1994 and 1993 approximated $8,902,000, $7,616,000 and $7,630,000, respectively.
12. INCOME TAXES
Income tax (expense) benefit on the Company's income (loss) before
extraordinary loss consists of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
Current:
Federal........................................................... $ (30,376) $ (13,883) $ 5,390
State............................................................. (2,892) (2,150) (610)
Deferred............................................................ (5,168) 2,476 4,160
---------- ---------- ---------
$ (38,436) $ (13,557) $ 8,940
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
In addition, for the year ended December 31, 1994, the Company recorded an
income tax benefit of $15.8 million as a result of the extraordinary loss from
the Recapitalization.
The statutory federal income tax rate was 35% for the years ended December
31, 1995, 1994 and 1993. The effective income tax rate differs from the amount
computed by applying the statutory federal income tax rate to the Company's
income before income taxes and extraordinary loss. The reasons for these
differences are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
Income tax (expense) benefit computed at statutory federal tax
rate.............................................................. $ (36,358) $ (12,271) $ 11,964
State income taxes................................................. (1,880) (554) (397)
Non-deductible amortization and expenses........................... (544) (245) (493)
Non-cash interest.................................................. -- (1,771) (1,883)
Effect of change in statutory federal income tax rate.............. -- -- (1,333)
Effect of Foreign Sales Corporation................................ 1,013 -- --
Other, net......................................................... (667) 1,284 1,082
---------- ---------- ---------
Income tax (expense) benefit....................................... $ (38,436) $ (13,557) $ 8,940
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
F-13
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES (CONTINUED)
The net deferred income tax liability consists of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Property, plant and equipment.................................................. $ 71,452 $ 70,193
Intangible assets.............................................................. 737 1,111
---------- ----------
Gross deferred tax liabilities............................................... 72,189 71,304
---------- ----------
Accounts receivable............................................................ (2,311) (1,718)
Inventories.................................................................... (659) (766)
Tax losses and credits carried forward......................................... (1,358) (4,238)
Other noncurrent assets........................................................ (1,321) (2,816)
Other noncurrent liabilities................................................... (16,895) (16,721)
Other.......................................................................... (1,335) (1,903)
---------- ----------
Gross deferred tax assets.................................................... (23,879) (28,162)
---------- ----------
$ 48,310 $ 43,142
---------- ----------
---------- ----------
</TABLE>
The Company has an unused alternative minimum tax credit carryforward of
approximately $0.4 million, which does not expire. The Company has unused net
operating loss carryforwards of $2.5 million in the United Kingdom, which do not
expire. In 1994, the Company received $5.5 million in income tax refunds related
to the carryback of the 1993 and 1992 net operating losses to the year ended
December 31, 1990.
13. INTEREST EXPENSE
For the year ended December 31, 1995, interest expense consists of (i)
interest on the 11 3/4% Senior Notes, (ii) interest on the Term Loan, (iii)
amortization of debt issuance costs, and (iv) an allocation for interest
capitalized in connection with construction projects (see note 5). For the years
ended December 31, 1994 and 1993, interest expense consists of (i) interest on
the Old Notes, (ii) accretion on the Old Notes, (iii) an adjustment for Emerging
Issues Task Force Issue No. 86-15 "Increasing Rate Debt", and (iv) an allocation
for interest capitalized in connection with construction projects.
14. OTHER INFORMATION
Export sales of the Company were $77,508,000, $52,382,000 and $31,617,000
for the years ended December 31, 1995, 1994 and 1993, respectively.
Other income for the year ended December 31, 1994 includes the reversal of a
$7.4 million lawsuit accrual for which the Company ultimately prevailed on
appeal.
Maintenance and repair expenses were $28,606,000, $27,335,000 and
$27,017,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
15. EMPLOYEE BENEFITS
SAVINGS PLAN
The Company sponsors an employee savings plan (the "Savings Plan") that
provides participating employees with additional income upon retirement.
Employees may contribute between 1% and 10% of their base salary up to a maximum
of $9,240 annually to the Savings Plan. The Company matches a minimum of 25% of
the employee's aggregate contributions up to 6% of the employee's base
F-14
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. EMPLOYEE BENEFITS (CONTINUED)
salary. Employee contributions are fully vested. Employer contributions are
fully vested upon retirement or after five years of service. For 1995, 1994 and
1993, the Company matched 25% of the employee contributions up to the 6% limit,
contributing approximately $388,000, $395,000 and $351,000 to the Savings Plan,
respectively.
PENSION AND RETIREMENT PLANS
The Company has two noncontributory defined benefit plans (the "Pension
Plans") covering substantially all full time employees. Benefits provided under
the Pension Plans are primarily based on years of service and the employee's
final average earnings. The Company's funding policy is to contribute annually
an amount based upon actuarial and economic assumptions designed to achieve
adequate funding of projected benefit obligations.
In October 1994, the Company adopted a Supplemental Executive Retirement
Plan (the "SERP") to provide supplemental retirement and survivor benefits for
certain key employees who complete a specified period of service and otherwise
become eligible under the SERP. In 1995, the Company deposited $2.8 million in a
rabbi trust account to fund the SERP. In 1994, no amount was funded for the
SERP.
The Company provides retirement and death benefits to certain employees
through an Executive Security Plan (the "Security Plan"). The Company does not
fund the Security Plan, and no amount was funded for the Security Plan in 1995
and 1994. No new employees have been added to this plan, and it is not expected
that any additional employees will participate in the Security Plan.
Net pension expense consists of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Service cost.......................................................... $ 2,050 $ 1,792 $ 1,279
Interest cost......................................................... 1,850 1,503 976
Actual return on plan assets.......................................... (2,704) 462 (1,278)
Net amortization and deferral......................................... 1,929 (1,410) 162
--------- --------- ---------
Net pension expense................................................... $ 3,125 $ 2,347 $ 1,139
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following table sets forth the funded status of the pension and
retirement plans at December 31 (in thousands):
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits.............................................................. $ 16,888 $ 12,505
Non-vested benefits.......................................................... 8,601 6,734
---------- ----------
Accumulated benefit obligation................................................. $ 25,489 $ 19,239
---------- ----------
---------- ----------
Projected benefit obligation................................................... $ 29,425 $ 23,152
Plan assets at fair value...................................................... (19,143) (14,387)
---------- ----------
Excess of projected benefit obligations over plan assets....................... 10,282 8,765
Unrecognized net loss.......................................................... (1,816) (193)
Unrecognized prior service cost................................................ (4,824) (5,388)
Additional liability........................................................... 3,088 3,171
---------- ----------
Pension liabilities included in other noncurrent liabilities................... $ 6,730 $ 6,355
---------- ----------
---------- ----------
</TABLE>
F-15
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. EMPLOYEE BENEFITS (CONTINUED)
At December 31, 1995 and 1994, in determining the present value of benefit
obligations, a discount rate of 7.25% and 8% was used, respectively. The
assumption for the increase in future compensation levels was 4.5% at December
31, 1995 and 1994. At December 31, 1995 and 1994, the expected long-term rate of
return on assets used in determining future service costs was 9%.
POSTEMPLOYMENT BENEFITS
The Company's obligation for postemployment benefits at December 31, 1995
and 1994 approximated $.9 million and $1.1 million, respectively, and is
included in other noncurrent liabilities.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors postretirement benefits other than the Pension Plans,
such as health care and medical benefits. The Company reimburses retirees for
these benefits but does not provide any additional funding for the
postretirement benefits.
Net postretirement benefit cost consists of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Service cost............................................................... $ 374 $ 394 $ 760
Interest cost.............................................................. 766 682 1,070
Net amortization and deferral.............................................. (339) (284) --
--------- --------- ---------
$ 801 $ 792 $ 1,830
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following table sets forth the funded status of the postretirement
benefits at December 31 (in thousands):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Active participants eligible for retirement.................................... $ 3,583 $ 3,003
Active participants not yet eligible for retirement............................ 3,553 3,889
Retired participants........................................................... 2,906 2,858
--------- ---------
Accumulated postretirement benefit obligation.................................... 10,042 9,750
Plan assets at fair value........................................................ -- --
--------- ---------
Excess of benefit obligation over plan assets.................................... 10,042 9,750
Unrecognized prior service cost.................................................. 760 837
Unrecognized net gain............................................................ 5,039 4,672
--------- ---------
Postretirement benefits included in other noncurrent liabilities................. $ 15,841 $ 15,259
--------- ---------
--------- ---------
</TABLE>
In 1995 and 1994, in determining the value of postretirement benefit
obligations, a discount rate of 7.25% and 8.0%, respectively, was used, and in
1995 the health care trend rate used to measure the expected increase in cost of
benefits was assumed to be 9.0% in 1996, and descending to 5.5% in 2003 and
thereafter. A one percentage-point increase in the assumed health care cost
trend rate for each year would increase the accumulated postretirement benefit
obligation as of December 31, 1995 by approximately $339,000 and would increase
the service and interest cost components of the net postretirement benefit cost
for the year ended December 31, 1995 by approximately $43,000.
EMPLOYEE STOCK OPTION PLANS
In 1988, the Company adopted a stock incentive plan (the "Stock Incentive
Plan") providing for the granting of 87,500 stock options for, stock
appreciation rights in, and the sale of restricted shares of, common stock for
certain employees. In 1993, the Company adopted a stock option plan (the
F-16
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. EMPLOYEE BENEFITS (CONTINUED)
"Employee Plan") providing for the granting of 700,000 stock options for common
stock to key employees of the Company. In 1994, the Company adopted a long-term
incentive plan (the "Incentive Plan") providing for the granting of 882,000
stock options for common stock to key employees of the Company. The Incentive
Plan is intended to replace the Stock Incentive Plan and the Employee Plan. The
Company has granted non-qualified stock options under the Stock Incentive Plan
and the Employee Plan. No grants had been made as of December 31, 1995 under the
Incentive Plan. Changes in stock options during the years indicated are as
follows:
<TABLE>
<CAPTION>
OPTIONS PRICE RANGE
OUTSTANDING PER SHARE
----------- ----------------------
<S> <C> <C>
Balance at December 31, 1992...................................... 32,000 $ 10.00 -- $304.00
Granted........................................................... 207,000 3.43
Cancelled......................................................... (18,700) 93.60 -- 304.00
-----------
Balance at December 31, 1993...................................... 220,300 3.43 -- 304.00
Granted........................................................... 498,000 3.71 -- 14.63
Exercised......................................................... (4,496) 3.43
Cancelled......................................................... (8,175) 304.00
-----------
Balance at December 31, 1994...................................... 705,629 3.43 -- 95.20
Exercised......................................................... (16,157) 3.43 -- 3.71
Cancelled......................................................... (9,561) 3.43 -- 95.20
-----------
Balance at December 31, 1995...................................... 679,911 $ 3.43 -- $ 14.63
-----------
-----------
</TABLE>
At December 31, 1995, 285,799 options are exercisable under the Stock
Incentive Plan and the Employee Plan, and 882,000 options are available for
grant under the Incentive Plan.
OUTSIDE DIRECTOR STOCK OPTION PLANS
In 1993, the Company adopted a non-qualified stock option plan for outside
directors providing for the granting of 225,000 stock options for common stock.
In 1995, the Company adopted a non-qualified stock option plan for outside
directors providing for the granting of 60,000 stock options for common stock.
Changes in stock options during the years indicated are as follows:
<TABLE>
<CAPTION>
OPTIONS PRICE RANGE
OUTSTANDING PER SHARE
----------- -----------------
<S> <C> <C>
Balance at December 31, 1992........................................... -- $ --
Granted................................................................ 104,167 0.63
-----------
Balance at December 31, 1993........................................... 104,167 0.63
Granted................................................................ 104,167 0.43
Exercised.............................................................. (14,583) 0.63
Cancelled.............................................................. (18,750) 0.43 -- 0.63
-----------
Balance at December 31, 1994........................................... 175,001 0.43 -- 0.63
Granted................................................................ 14,500 2.09
Exercised.............................................................. (104,167) 0.43 -- 0.63
-----------
Balance at December 31, 1995........................................... 85,334 $ 0.43 -- $2.09
-----------
-----------
</TABLE>
At December 31, 1995, 25,000 options are exercisable, and 45,500 options are
available for grant.
STOCK OPTION FOR FORMER OFFICER
In 1994, a stock option to purchase 105,031 shares of common stock at an
aggregate exercise price of $901,120 was exercised.
F-17
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. EMPLOYEE BENEFITS (CONTINUED)
STOCK BONUS PLAN
In 1985, the Company established an employee stock bonus plan (the "Stock
Bonus Plan") for the benefit of its employees. Contributions were made at the
discretion of the Company. Effective January 1, 1992, all participants (as
defined) became 100% vested, and participation in the Stock Bonus Plan was
frozen. The Company intends to terminate the Stock Bonus Plan and distribute all
funds in 1996.
16. COMMON STOCK PURCHASE RIGHTS
In 1993, the Company declared a dividend distribution of one Common Stock
Purchase Right (a "Right") for each outstanding share of common stock. The
Rights are exercisable only if a person or group acquires 15% or more of common
stock or announces a tender offer, the consummation of which would result in
ownership by a person or group of 15% or more of the common stock. Each Right
entitles stockholders to purchase such number of shares of common stock at an
exercise price of $60.00 (as amended) as determined under formulas set out in
the agreement providing for the Rights. The existence of the Rights may, under
certain circumstances, render more difficult or discourage attempts to acquire
the Company.
The Company can terminate the Rights at no cost any time prior to the
acquisition of a 15% position. The termination period can be extended by the
Board of Directors. The rights expire February 8, 2003.
17. RELATED PARTY TRANSACTIONS
Pursuant to a letter agreement between the Company and its Chairman of the
Board, Arthur L. Goeschel, the Company agreed to pay Mr. Goeschel, in addition
to his normal director fees, a sum of $2,750 per day plus expenses for each day
over five days per quarter that he spends on Company matters. Under this letter
agreement, the Company paid Mr. Goeschel approximately $50,000 and $107,000 in
additional fees for the years ended December 31, 1994 and 1993, respectively. No
amount of additional fees were paid in 1995.
Mr. Kevin Clowe, a former director of the Company in 1994 and 1993, is a
corporate officer of The American International Group, Inc. ("AIG") which
provides various types of insurance for the Company. During 1994 and 1993, the
Company paid approximately $3.1 million and $2.8 million, respectively, in
premiums and fees to subsidiaries of AIG in the ordinary course of business.
Mr. Ilan Kaufthal, a director of the Company, is a managing director of
Schroder Wertheim & Co. Incorporated ("Schroder"). In connection with the
Recapitalization in 1994, the Company paid Schroder underwriter fees of
approximately $2.9 million.
A son of Mr. Andrew J. Smith, the Chief Executive Officer and a director of
the Company, became a Vice President in 1990 and a stockholder in 1993 of Orion
Pacific, Inc. ("Orion"). In August 1993, the son of Mr. Smith resigned as an
officer and employee of Orion. Pursuant to contractual arrangements entered into
in 1988, (i) the Company sells to Orion certain (a) discarded by-products which
Orion extracts from Company landfills and (b) scrap products, and (ii) Orion
packages and processes a portion of APAO manufactured by the Company at its
plant in Odessa, Texas. During the year ended December 31, 1993, the Company
sold approximately $.3 million, of such by-product and scrap products to Orion
in the ordinary course of business, and the Company purchased approximately $1.6
million of APAO processing and packaging services and miscellaneous materials
from Orion.
F-18
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. CONTINGENCIES
ENVIRONMENTAL REGULATION
The Company is subject to extensive environmental laws and regulations
concerning, for example, emissions to the air, discharges to surface and
subsurface waters and the generation, handling, storage, transportation,
treatment and disposal of waste and other materials. The Company believes that,
in light of its historical expenditures, it will have adequate resources to
conduct its operations in compliance with currently applicable environmental and
health and safety laws and regulations. However, in order to comply with
changing facility permitting and regulatory standards, the Company may be
required to make additional significant site or operational modifications.
Further, the Company has incurred and may in the future incur liability to
investigate and clean up waste or contamination at its current or former
facilities, or which it may have disposed of at facilities operated by third
parties. On the basis of reasonable investigation and analysis, management
believes that the approximately $20.3 million accrued in the December 31, 1995
balance sheet is adequate for the total potential environmental liability of the
Company with respect to contaminated sites. However, no assurance can be given
that all potential liabilities arising out of the Company's present or past
operations have been identified or fully assessed or that the amounts that might
be required to investigate and remediate such sites will not be significant to
the Company. The Company continually reviews its estimates of potential
environmental liabilities.
PHILLIPS BLOCK COPOLYMER LITIGATION
In March 1984, Phillips Petroleum Company ("Phillips") filed a lawsuit
against the Company in the United States District Court for the Northern
District of Illinois, Eastern Division, seeking injunctive relief, an
unspecified amount of compensatory damages and treble damages. The complaint
alleged that the Company's copolymer process for polypropylene infringed
Phillips' two "block" copolymer patents, the last of which expired in 1994. This
action has been transferred to the United States District Court for the Southern
District of Texas, Houston Division. Discovery proceedings in this case have
been completed. The Company has filed a motion for summary judgment. Phillips
has filed a motion for partial summary judgment. Pursuant to an agreement among
the parties, the court appointed a special master who conducted a hearing on
these motions and thereafter recommended to the court that the Company's motion
be granted and Phillips' motion be denied. Thereafter, Phillips filed motions to
disqualify the special master, to reject the recommendation of the special
master and to enter partial summary judgment for Phillips. The court has entered
an order denying Phillips' motion to disqualify the special master. The summary
judgment motions are still pending. In the Company's bankruptcy proceeding in
1992, Phillips filed a proof of claim seeking in excess of $108 million based
upon the allegations in this litigation. The Company objected to the claim and
elected to leave the legal, equitable and contractual rights of Phillips
unaltered, thereby allowing this litigation to proceed without regard to the
bankruptcy proceeding.
PHILLIPS CRYSTALLINE LICENSE LITIGATION
In May 1990, Phillips filed a lawsuit against the Company in the United
States District Court for the District of Delaware seeking injunctive relief, an
unspecified amount of compensatory damages, treble damages and attorneys' fees,
costs and expenses. The complaint alleged that the Company was infringing
Phillips' Patent No. 4,376,851 (the " '851 Patent") for crystalline
polypropylene. Pursuant to a License Agreement dated as of May 15, 1983, as
amended, (the "License Agreement"), Phillips granted the Company a non-exclusive
license to make, use and sell crystalline polypropylene covered by the '851
Patent. The complaint alleged that effective April 21, 1990, Phillips terminated
the License Agreement because it believed that, by the terms of the License
Agreement, all conditions precedent to such termination had occurred. The
complaint further alleged that, without an effective License Agreement, the
Company's continuing use of the '851 Patent constitutes an infringing use.
F-19
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. CONTINGENCIES (CONTINUED)
An amended complaint filed in May 1990 further alleged that the Company made a
material misrepresentation that induced Phillips to enter into the License
Agreement and that Phillips entered into the License Agreement as a consequence
of a mutual mistake of the parties. The amended complaint therefore alleged that
the License Agreement was void AB INITIO. The Company filed a motion to dismiss
Phillips' amended complaint for failure to state a claim. On December 30, 1993,
the Court entered an order dismissing Phillips' claim that the License Agreement
was void AB INITIO, and ordered that the 1990 license termination issue be
resolved at trial. A trial was conducted before the United States District Court
in October 1994. At trial, Phillips sought damages of approximately $15.5
million, plus interest and fees, for alleged infringement for the period between
April 21, 1990 and trial. On June 19, 1995, the United States District Court
entered judgment in favor of the Company on the license termination issue and
concluded that Phillips had not properly terminated the License Agreement. Thus,
the License Agreement remains in effect, and the Company is not infringing the
'851 Patent. Phillips has appealed the court's judgment on the license
termination issue only. The appeal was argued on March 6, 1996 before the Court
of Appeals for the Federal Circuit. No decision has been entered by the Court of
Appeals. Although the Company believes that it has meritorious defenses to this
lawsuit, in the event of an unfavorable ruling, the Company will be required to
renegotiate a new license agreement at a substantially higher rate than paid
under the current license.
ODESSA RESIDENTS' TORT LITIGATION
On April 15, 1994, the national and state chapters of the NAACP and
approximately 770 residents of a neighborhood approximately one mile northwest
of the Shell Oil Company ("Shell"), the Company and Dynagen, Inc. ("Dynagen")
plants in Odessa, Texas petitioned the State District Court in Odessa, Texas to
intervene in a previously existing lawsuit against Dynagen to (a) add as
additional defendants the Company, Shell and General Tire Corporation (the
parent company of Dynagen) and (b) have the litigation certified as a class
action. The plaintiffs' petition seeks an unspecified amount of money damages
for past, present and future injuries to plaintiffs' health, wrongful death,
loss of consortium and reduction in property values; the conduct and payment of
property clean up, remediation and relocation costs; payment of expenses for
medical testing and monitoring; funding of pollution and health studies;
attorney's fees; punitive damages and injunctive relief. Plaintiffs' petition
specified alleged pollution from air emissions from the three plants as a basis
for their claims. The trial court has allowed intervention and severed the
action from the original lawsuit against Dynagen. Plaintiffs have withdrawn
their motion to have the litigation certified as a class claim. In November
1994, the plaintiffs filed an amended petition which substituted the Odessa
branch of the NAACP as plaintiff in place of the national and state chapters of
the NAACP. The amended complaint also added approximately 100 additional
plaintiffs. Defendants are challenging the NAACP's standing to participate in
the lawsuit. Pretrial discovery is ongoing.
------------------------
Although there can be no assurance of the final resolution of any of these
matters, the Company believes that, based upon its current knowledge of the
facts of each case, it has meritorious defenses to the various claims made and
intends to defend each suit vigorously, and the Company does not believe that
the outcome of any of these lawsuits will have a material adverse effect on the
Company's financial position, results of operations or cash flows.
The Company is also a party to various lawsuits arising in the ordinary
course of business and does not believe that the outcome of any of these
lawsuits will have a material adverse effect on the Company's financial
position, results of operations or cash flows.
F-20
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for the years ended December 31,
1995 and 1994 is as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
--------------------------------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1995 1995 1995 1995 1994 1994 1994 1994
------------ ------------- --------- ----------- ------------ ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.............. $ 132,145 $ 154,113 $ 159,452 $ 169,528 $ 151,804 $ 142,937 $ 124,140 $ 119,076
Gross profit........... 29,163 40,154 52,284 55,997 42,717 33,529 23,991 19,672
Income (loss) before
extraordinary loss.... 8,102 13,960 20,532 22,849 15,351 6,814 1,064 (1,725)
Extraordinary loss..... -- -- -- -- (25,831) -- -- --
Net income (loss)...... 8,102 13,960 20,532 22,849 (10,480) 6,814 1,064 (1,725)
Weighted average shares
outstanding........... 19,112 19,143 19,125 19,104 13,992 11,063 10,898 10,501
Income (loss) per
share:
Income (loss) before
extraordinary loss.... .42 .73 1.07 1.20 1.10 .62 .10 (.16)
Extraordinary loss..... -- -- -- -- (1.85) -- -- --
Net income (loss)...... .42 .73 1.07 1.20 (.75) .62 .10 (.16)
Dividends per share.... .04 -- -- -- -- -- -- --
</TABLE>
20. SUBSEQUENT EVENT
On March 15, 1996, the Board of Directors approved a financing plan (the
"Financing"), and the Company executed a commitment letter with a bank to
replace the existing Revolving Credit Facility. The Financing would provide a
new credit facility (the "New Credit Facility") in an initial principal amount
of $150 million. The Financing is contingent on a number of factors including
the negotiation of the New Credit Facility. The Company anticipates consummation
of the Financing during the second quarter of 1996.
F-21
<PAGE>
December 15, 1995
[SEE SCHEDULE A]
______________________
______________________
Rexene Corporation
5005 LBJ Freeway, Suite 500
Dallas, Texas 75244
Dear _____:
This letter shall serve as an agreement between Rexene Corporation
("Rexene") and you regarding the payment of certain severance compensation in
various termination situations, all as described below:
1. If Rexene terminates your employment without cause, then
Rexene shall pay you within ten business days of such termination
severance compensation equal to one year of your then current base
salary.
2. If your employment is terminated without cause after a
change of control in Rexene, or if you voluntarily resign your
employment after such a change in control because as a condition to
continued employment with Rexene or any successor to either Rexene or
any or part of its business or assets (a "Successor"), you are required
to (i) relocate outside the continental United States, (ii) relocate
within the continental United States without relocation assistance at
least equal that provided under the Rexene relocation policy then in
effect, (iii) accept a reduction in your base salary, or (iv) accept a
position of lesser responsibility or authority than you had prior to the
change in control, then Rexene shall pay or cause a Successor to pay you
within ten business days after the effective date of such termination or
voluntary resignation severance compensation equal to three times your
then current annual base salary less one dollar. Such payment shall be
in lieu of and not in addition to the severance compensation set forth
in the preceding paragraph.
3. If you voluntarily resign your employment after a change
in control because as a condition to continued employment with Rexene or
any Successor, you are required to relocate within the continental
United States even though you are offered relocation assistance at least
equal that provided under the Rexene relocation policy then in effect,
then Rexene shall pay or cause a Successor to pay you within ten
business days after the effective date of voluntary resignation
severance compensation equal to one and one-half (1.5) times your then
current annual base salary. Such payment shall be in lieu of and not in
addition to the severance compensation set forth in paragraph 1 above.
For purposes of this letter agreement, the terms "termination without
cause," "cause" and "change of control in Rexene" shall be defined as set
forth in Exhibit A which is attached hereto and incorporated herein.
<PAGE>
_____________________
December 15, 1995
Page 2
The payment of severance compensation under this letter agreement would
be conditional upon your executing and delivering to Rexene or a Successor
its then standard form settlement agreement and general release.
THIS LETTER AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
TEXAS.
If any provision of this letter agreement is found to be illegal,
invalid or unenforceable, then such provision shall be replaced if possible
by a substitute provision as close thereto as is legal, valid and
enforceable, and in any event, the remaining provisions of this letter
agreement shall not terminate but shall be considered to continue in full
force and effect.
This letter agreement constitutes the entire agreement between Rexene
and you with respect to the subject matter hereof, and it supersedes all
prior or contemporaneous negotiations, understandings and agreements, written
or oral, between us. This letter agreement may not be modified or amended or
any provision hereof waived except pursuant to a written document duly signed
by both Rexene and you.
If the foregoing is acceptable to you, please sign this letter below and
return to me. A duplicate original is enclosed for your records.
Very truly yours,
REXENE CORPORATION
By: ____________________________
AGREED TO AND ACCEPTED:
_________________________
69100 08955 CORP 110704
<PAGE>
EXHIBIT A
to
Letter Agreement Dated December 15, 1995
Between
Rexene Corporation and
1. CAUSE. "Cause" shall mean any of the following:
(a) conduct involving moral turpitude or fraud, regardless of
the context, which conduct shall be conclusively presumed if you are
convicted of or enter a plea of NOLO CONTENDERE or similar plea as to a
crime involving moral turpitude or fraud,
(b) repeated intoxication by alcohol or drugs during the
performance of your duties,
(c) malfeasance in the conduct of your duties, including
misuse or diversion of Rexene's funds, embezzlement or willful and
material misrepresentations or concealments on any reports submitted to
Rexene.
(d) repeated material failure by you to perform your duties
as an officer, or
(e) material failure to follow or comply with the reasonable
and lawful directives of the Board of Directors or the written policies
of Rexene.
2. CHANGE OF CONTROL IN REXENE. A "change of control in Rexene" shall
mean any one of the following:
(a) Continuing Directors no longer constitute at least
two-thirds of the Directors constituting the Board (the terms
"Continuing Directors," "Directors," and the "Board" being used as
defined below);
(b) any person or group of persons (as defined in Rule 13d-5
under the Securities Exchange Act of 1934), together with its
affiliates, becomes the beneficial owner, directly or indirectly, of 20%
or more of Rexene's then outstanding common stock or 20% or more of the
voting power of Rexene's then outstanding securities entitled generally
to vote for the election of Directors;
(c) the occurrence of or the approval by Rexene's
stockholders of the merger or consolidation of Rexene with any other
corporation, the sale of any substantial portion of the assets of Rexene
or the liquidation or dissolution of Rexene unless, in the case of a
merger or consolidation, the Continuing Directors in office immediately
prior to such merger or consolidation will constitute at least
two-thirds of the directors constituting the board of directors of the
surviving corporation of such merger or consolidation and any parent (as
such term is defined in Rule 12b-2 under the Securities Exchange Act of
1934) of such corporation; or
<PAGE>
(d) at least a majority of the Continuing Directors in office
immediately prior to any other action taken or proposed to be taken by
Rexene's stockholders or by the Board determines that such action
constitutes, or that such proposed action, if taken, would constitute, a
Change of Control of Rexene and such action is taken.
For the purposes of section 2 of this Exhibit, "Board" means the board
of directors of Rexene, "Director" means a member of the Board, and
"Continuing Director" means any person who is either (i) a Director on the
date hereof, or (ii) was designated as Continuing Director by a majority of
the Continuing Directors.
3. TERMINATION WITHOUT CAUSE. "Termination without cause" means any
involuntary separation for any reason except for a "cause" or a "change in
control in Rexene."
-2-
<PAGE>
SCHEDULE A
Andrew J. Smith
Lavon N. Anderson
Kevin W. McAleer
Jack E. Knott
Jonathan R. Wheeler
James M. Ruberto
Bernard J. McNamee
<PAGE>
March 1, 1995
[SEE SCHEDULE A]
Rexene Corporation
5005 LBJ Freeway
Dallas, Texas 75244
Re: Executive Security Plan
Dear ___________:
You have advised me that my eligibility to receive retirement benefits
under the Rexene Supplemental Executive Retirement Plan ("SERP") adopted
effective October 1, 1994 is conditioned upon the waiver of my rights and the
rights of my beneficiaries to receive retirement and related post-retirement
death benefits under the Executive Security Plan dated April 1, 1986 and the
Key Officer Participation Agreement dated April 8, 1986 executed by me in
connection with the Executive Security Plan. I acknowledge receipt of a copy
of the SERP, the Executive Security Plan and the Key Officer Participation
Agreement; and having read them, and in order to be eligible for retirement
benefits under the SERP:
I hereby elect to participate in the SERP;
I hereby waive all rights that I or any of my beneficiaries, including
my estate, may ever have to receive a death benefit under Article 3 of the
Executive Security Plan or Section 1 of my Key Officer Participation
Agreement if prior to my death I or my surviving spouse shall have been
entitled to receive, or shall in fact have been receiving, retirement
benefits under Article VI of the SERP;
I also hereby waive all my rights that I or any of my beneficiaries,
including my estate, may now or hereafter have to receive any retirement
benefits under Article 4 of the Executive Security Plan and Section 2 of my
Key Officer Participation Agreement;
<PAGE>
________________________
March 1, 1995
Page 2
I hereby release Rexene Corporation and its successors and assigns
("Rexene") from any and all responsibility, liability and obligation to make
or pay any death benefit to any of my beneficiaries, including my estate,
under Article 3 of the Executive Security Plan and Section 1 of my Key
Officer Participation Agreement if, prior to my death, I or my surviving
spouse shall have been entitled to receive, or shall in fact have been
receiving, retirement benefits under Article VI of the SERP and to make or
pay any benefits to me or my beneficiaries under Article 4 of the Executive
Security Plan and Section 2 of my Key Officer Participation Agreement. I
further agree, if any claim shall be made by me or my beneficiaries,
including my estate, against Rexene for any such payment pursuant to Article
3 or 4 of the Executive Security Plan or pursuant to my Key Officer
Participation Agreement, I (or my estate, if applicable) will defend,
indemnify and hold Rexene harmless from and against any such claim, including
reasonable legal fees incurred in connection with defending or resolving such
claim.
Very truly yours,
_______________________________
<PAGE>
SCHEDULE A
Lavon N. Anderson
Jack E. Knott
<PAGE>
FIRST AMENDMENT AND SUPPLEMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT AND SUPPLEMENT TO CREDIT AGREEMENT (this "FIRST
AMENDMENT") is made and entered into as of the 17th day of July, 1995 (the
"Effective Date"), among REXENE CORPORATION, a Delaware corporation
("BORROWER"); THE BANK OF NOVA SCOTIA, ("SCOTIABANK"), as Agent (in such
capacity "AGENT"), for itself and each of the other lenders that is a
signatory to or which becomes a signatory to the hereinafter identified
Credit Agreement (Scotiabank and such other lenders collectively "LENDERS").
RECITALS
A. On November 29, 1994, Borrower, Agent and Lenders entered into a
certain Credit Agreement (said Credit Agreement, as modified by four (4)
letters dated as of January 27, 1995, April 12, 1995, May 22, 1995, and May
30, 1995, the "CREDIT AGREEMENT") whereby, upon the terms and conditions
therein stated, the Lenders agreed to make certain loans and extend certain
credit to the Borrower.
B. Borrower, Agent and Lenders mutually desire to amend certain
aspects of the Credit Agreement to provide for certain dividends to be paid
on Borrower's common stock.
C. In consideration of the mutual covenants and agreements herein
contained, Borrower, Agent and Lenders hereby agree that the Credit Agreement
shall be amended as follows:
1. CERTAIN DEFINITIONS. As used in this First Amendment, the terms
"AGENT", "BORROWER", "CREDIT AGREEMENT", "EFFECTIVE DATE", "FIRST AMENDMENT"
and "LENDERS" shall have the meanings indicated above; and unless otherwise
defined herein, all terms beginning with a capital letter which are defined
in the Credit Agreement shall have the same meanings herein as therein unless
the context hereof otherwise requires.
2. AMENDMENTS TO CREDIT AGREEMENT.
2.1 DEFINED TERMS. The term "AGREEMENT" is hereby amended to mean the
Credit Agreement, as amended and supplemented by this First Amendment and as
the same may from time to time be further amended or supplemented.
2.2 ADDITIONAL DEFINED TERMS. Section 1.02 of the Credit Agreement is
hereby further amended and supplemented by adding the following new
definition, which reads in its entirety as follows:
"'FIRST AMENDMENT' shall mean that certain First Amendment and
Supplement to Credit Agreement dated as of July 17, 1995, among the Borrower,
Agent and Lenders."
2.3 RESTRICTED PAYMENTS. Section 9.04 of the Credit Agreement is
hereby amended in its entirety to read as follows:
<PAGE>
"Section 9.04 RESTRICTED PAYMENTS. The Borrower or
any Restricted Subsidiary will not declare or pay any
dividend, purchase, redeem or otherwise acquire for value
any of its stock now or hereafter outstanding, return any
capital to its stockholders or make any distribution of
its assets to its stockholders or repay, purchase,
repurchase, defease or make any prepayments on the Senior
Unsecured Notes; PROVIDED, HOWEVER, so long as no Default
has occurred and is continuing hereunder or would occur
as a consequence thereof, the Borrower and any Restricted
Subsidiary may declare (A) and pay (i) dividends payable
in Capital Stock of the Borrower, or (ii) dividends or
distributions payable to the Borrower or any Restricted
Subsidiary, and (B) dividends on the common stock of the
Borrower during the four fiscal quarters immediately
following the fiscal quarter ended June 30, 1995, but in
no event shall the aggregate amount of such dividends
declared and paid with respect to such four fiscal
quarters exceed $4,000,000."
3. DEFAULT. Any default under this First Amendment shall constitute a
default under the Credit Agreement.
4. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants to the Bank that:
(i) There exists no default or event of default, or
any condition or act which constitutes, or with
notice or lapse of time or both would constitute, an
Event of Default under the Credit Agreement, as
hereby amended and supplemented;
(ii) The Borrower has performed and complied with
all covenants, agreements and conditions contained
in the Credit Agreement, as hereby amended and
supplemented, required to be performed or complied
with by it; and
(iii) The representations and warranties of the
Borrower contained in the Credit Agreement, as
hereby amended and supplemented, were true and
correct when made, and are true and correct in all
material respects at and as of the time of delivery
of this First Amendment.
5. EXTENT OF AMENDMENTS. Except as expressly herein set forth, all of
the terms, conditions, defined terms, covenants, representations, warranties
and all other provisions of the Credit Agreement are herein ratified and
confirmed and shall remain in full force and effect.
6. COUNTERPARTS. This First Amendment may be executed in two or more
counterparts, and it shall not be necessary that the signatures of all
parties hereto be contained on any one counterpart hereof; each counterpart
shall be deemed an original, but all of which together shall constitute one
and same instrument.
7. REFERENCES. On and after the Effective Date hereof, the terms
"AGREEMENT," "hereof," "herein," "hereunder," and terms of like import when
used in the Credit Agreement
<PAGE>
shall, except where the context otherwise requires, refer to the Credit
Agreement, as amended and supplemented by this First Amendment.
This First Amendment shall benefit and bind the parties hereto, as well
as their respective assigns, successors, heirs and legal representatives.
EXECUTED as of the date first above written.
BORROWER: REXENE CORPORATION
By: /s/ Bernard J. McNamee
--------------------------------------
Name: Bernard J. McNamee
--------------------------------------
Title: Executive Vice President
--------------------------------------
LENDERS AND AGENT: THE BANK OF NOVA SCOTIA,
Individually and as Agent
By: THE BANK OF NOVA SCOTIA,
ATLANTA AGENCY
By: /s/ A.S. Norsworthy
--------------------------------------
Name: A.S. Norsworthy
--------------------------------------
Title: Assistant Agent
--------------------------------------
<PAGE>
NATIONAL BANK OF CANADA MELLON BANK, N.A.
By: /s/ David L. Schreiber By: /s/ Roger D. Attix
----------------------------- -----------------------------
Name: David L. Schreiber Name: Roger D. Attix
----------------------------- -----------------------------
Title: Assistant Vice President Title: Vice President
----------------------------- -----------------------------
By: /s/ William W. Handley THE FIRST NATIONAL BANK OF
----------------------------- CHICAGO
Name: William W. Handley
-----------------------------
Title: Vice President
-----------------------------
DEN NORSKE BANK AS By: /s/ Daniel B. Catlin
--------------------------------------
Name: Daniel B. Catlin
--------------------------------------
Title: Assistant Vice President
--------------------------------------
By: /s/ Theodore S. Jadick, Jr.
-----------------------------
Name: Theodore S. Jadick, Jr. THE FUJI BANK LIMITED
-----------------------------
Title: Senior Vice President
-----------------------------
By: /s/ Philip C. Laninger III
--------------------------------------
By: /s/ Fran Meyers Name: Philip C. Laninger III
----------------------------- --------------------------------------
Name: Fran Meyers Title: Vice President and Joint Manager
----------------------------- --------------------------------------
Title: Vice President
-----------------------------
BANK OF AMERICA ILLINOIS
SOCIETE GENERALE, SOUTHWEST
AGENCY
By: /s/ W. Thomas Barnett
--------------------------------------
Name: W. Thomas Barnett
--------------------------------------
Title: Vice President
--------------------------------------
By: /s/ Benoit Dessenne
-----------------------------
Name: Benoit Dessenne
-----------------------------
Title: Assistant Vice President
-----------------------------
By: /s/ Richard M. Lewis
-----------------------------
Name: Richard M. Lewis
-----------------------------
Title: Vice President
-----------------------------
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REXENE CORPORATION
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
El Paso Products Sales Company Texas
Rexene Foreign Sales Company U.S. Virgin Islands
Rexene Cogeneration, Inc. Delaware
Rexene Corporation Limited England
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-60543 and 33-60553) of Rexene Corporation of our
report dated February 7, 1996, except as to Note 20, for which the date is March
15, 1996, appearing on page F-2 of this Form 10-K.
PRICE WATERHOUSE LLP
Dallas, Texas
March 15, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 47,258
<SECURITIES> 0
<RECEIVABLES> 76,894
<ALLOWANCES> 3,374
<INVENTORY> 62,257
<CURRENT-ASSETS> 192,776
<PP&E> 347,527
<DEPRECIATION> 55,852
<TOTAL-ASSETS> 520,591
<CURRENT-LIABILITIES> 84,360
<BONDS> 175,000
0
0
<COMMON> 187
<OTHER-SE> 139,964
<TOTAL-LIABILITY-AND-EQUITY> 520,591
<SALES> 615,238
<TOTAL-REVENUES> 615,238
<CGS> 437,640
<TOTAL-COSTS> 437,640
<OTHER-EXPENSES> 52,452
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,343
<INCOME-PRETAX> 103,879
<INCOME-TAX> 38,436
<INCOME-CONTINUING> 65,443
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,443
<EPS-PRIMARY> 3.42
<EPS-DILUTED> 0
</TABLE>
